Q4 2023 Couchbase Inc Earnings Call
[music].
Greetings and welcome to the Couch based fourth quarter and full year fiscal 2023 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
Now I'll turn the conference over to your host Edward Parker you may begin.
Good afternoon, and welcome to Couch basis fourth quarter 2023 earnings call, we'll be discussing the results announced in our press release issued after the market close today with me are calculated as chair and CEO , Matt Kane and CFO , Greg Henry.
Today's call will contain forward looking statements, which include statements concerning financial and business trends and strategies market size and expected future business and financial performance and financial condition and our guidance for future periods. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, we do not undertake any duty to update these statements.
Forward looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations for a discussion of the material risks and other important factors that could affect our actual results. Please refer to these risks discussed in today's press release and our most recent annual report on Form 10-K quarterly report on Form 10-Q filed with the SEC during.
During the call. We will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as how we define these metrics and other metrics is included in our earnings press releases, which are available on our Investor Relations website.
With that let me turn the call over to Matt.
Thank you Edward and good afternoon, everyone.
On today's call Gregg and I will provide details on our fourth quarter results as well as our first quarter and full year fiscal 2020 for guidance.
I'll start off with a few highlights of our Q4 financial results.
<unk> delivered another strong quarter, beating our guidance across all metrics. We delivered these results in spite of continued macroeconomic headwinds anchored by growing momentum with capella.
<unk> retention metrics and ongoing large deal activity.
Furthermore, our pipeline continues to see healthy growth.
I'm, especially pleased with the substantial progress we made operationally during the quarter headlined by better than expected non-GAAP operating margin performance.
This is a direct result of our focus across the company on driving improvement inefficiency efforts that will serve us well in fiscal 'twenty 'twenty four and beyond.
Total annual recurring revenue or <unk> was $163 7 million up 23% year over year and up 24% in constant currency.
Revenue in Q4 was $41 $6 million up 19% year over year.
Our non-GAAP gross margin remains best in class at 86, 3% non.
non-GAAP operating loss was $9 9 million 15 percentage points above the midpoint of our implied operating margin guidance range will.
I will cover more on this in a minute, but we will continue to complement our strong topline momentum with an increasing focus on driving more efficient growth and operating leverage in our model.
We exited the quarter with 675 customers an increase of 17 from Q3, the majority of which were capella deals.
Before Greg provides more details on Q4 I want to highlight our accomplishments from the past year and reiterate our priorities for fiscal 2024.
Looking back in fiscal 'twenty twenty-three I'm extremely proud that we accomplished all that we laid out to do at the beginning of the year.
I attribute the success to three things.
Our expanded and differentiated product portfolio.
Our enhanced and more efficient go to market initiatives.
And key additions to our world class team.
These achievements have put us in an excellent position heading into fiscal 'twenty 'twenty four to build on our momentum and importantly meaningfully accelerated the pace of leverage in our model.
Let me briefly recap these achievements.
First we made rapid progress with Capella, our fully managed cloud database platform.
Recall that we launched capella on Google cloud during the summer, which includes our unique App services.
Next we introduced a new developer experience for Capella in the fall and then announced Capella on Azure This past January .
Completing availability on all three major cloud platforms.
And thanks to the investments we made we saw meaningful new capella logo additions and migrations across a broad range of industries over the year.
This was complemented by a growing pipeline of exciting capella opportunities across both new and existing customers.
Second we made significant progress with our go to market efficiency.
We transformed how we go to market across buy from and sell two motions both in terms of efficacy and efficiency.
Importantly, our partner and alliance ecosystem continues to deepen.
During the year, we saw strong bookings growth sourced and influenced by partners, including Isps cloud service providers and system integrators.
I am, particularly excited about our broadened multi year strategic collaboration agreement with AWS that we announced at re invent in November this.
This has already begun to accelerate and streamline customer migrations to capella on AWS.
On the buy from side, we continue to invest in growing our mindshare with developers through community building and developer relations.
We grew the number of evangelists and the market increase our developer events and enhanced our online community presence.
All of this combined with product enhancements, we made for developers will be an important accelerator for our business.
And third we evolved our world class team and culture by adding new leadership across multiple parts of the organization, including sales engineering and more.
Our culture remains a sustainable competitive advantage as we attract develop and retain the highly skilled talent necessary to execute on our growth strategies.
Refocused roles and responsibilities have accelerated our product development and delivery allowed us to move at a faster pace and drive higher operational rigor and enhanced go to market efficiency.
In summary, the strategic product go to market and team investments, we made in fiscal 2023 are yielding incremental offerings and capabilities that we believe bolsters our ability to deliver sustained growth. While also doing so in an increasingly efficient way.
We've always operated under a disciplined approach to our expenses.
However, the implementation of increased operational rigor in recent weeks reflects an extra step to complement our growth with improved leverage in 2024.
Now turning to wins from the quarter. We are pleased that in Q4, a majority of our net new logos where capella.
We added customers from a broad range of industries, including technology E Commerce gaming insurance health care travel and more.
Some exciting wins included a premier global gaming and Entertainment company.
Publicly traded global IP company, and a fast growing mobile health care company.
The Capella new logo use cases from the corner reinforce what we started to see with Capella new logos at the beginning of the year customers selecting capella for best in class performance speed flexibility scalability and improved T C L.
Yeah.
In addition to new logos, we continue to see an acceleration of capella migrations from existing customers.
One such migration came from a clothing company that owns several major international brands.
This long time customer has leveraged couch base to build digital showrooms for a smooth immersive experience that works flawlessly, regardless of Internet connectivity.
I made the decision to move from on Prem to Capella because of the flexibility performance and improved T. C. O that are managed service provided.
Another notable capella migration in the quarter was a seven figure deal from a leading cloud based enterprise communication platform provider.
This customer initially selected capella when looking to support large scale real time communication for managing sessions and recording SMS messages.
After seeing initial success with Capella performance they have moved their entire couch face a state to capella.
The developer team is experienced an even greater reduction in database management and they have reduced T C O.
All while Capella has supported their rapid application growth.
And our server and mobile offerings continued to generate both new logos and large expansions for us.
In the quarter, we saw momentum across a broad range of industries, including telco retail media and entertainment technology and travel.
Customers continue to leverage our platform for a wide range of use cases and the power many of their most important business applications.
They also continue to take advantage of our differentiated architecture, and multi modal capabilities by consolidating vendors to realized cost efficiencies and lower T. C. L.
Now turning to some thoughts on the near term environment given.
Given the large opportunity ahead of US we plan to keep innovating and investing while also placing increased rigor on our expense discipline and focusing on what we can control.
Like many of our technology peers, we're seeing the impact of macroeconomic headwinds affecting broader it spending.
And these trends intensified in the quarter.
That said demand indicators remain strong and we continue to see healthy pipeline growth.
Modern databases are nothing short of a requirement for successful digital transformation.
Which remains a strategic priority across the global enterprises and organizations we serve.
Relational systems are too expensive and ill suited for the task.
And we believe that other emerging no sequel solutions lack sufficient performance and scale to accommodate the incessant growth in data volume and variety that is at the core of application modernization.
Couch spaces ability to deliver in a fast flexible familiar and affordable way continues to resonate across our market.
Of note the increase interest and the economic value of our platform and the unique value proposition of Capella are serving as a powerful validation of one of our core differentiators, especially against this more challenging macro backdrop.
As we look to fiscal 'twenty 'twenty four we remain extremely mindful of all of these dynamics. This focus has carefully informed how we were looking at the near term outlook. Both in terms of driving continued growth and leverage.
I am confident that we are well positioned to weather any downturn as a result of these strategic initiatives that are just starting to bear fruit coupled with the operational improvements we've implemented.
These include a greatly expanded product portfolio, particularly with capella, a meaningfully expanded partner ecosystem.
And transformational changes in terms of how we go to market.
This will serve us well as we continue to seize the massive opportunity to drive a generational rethink of the database market.
In closing I want to reiterate our priorities.
First delivering topline growth.
Second increasing the mix of capella across all metrics.
Third driving further sales and marketing efficiency and fourth accelerating the pace of leverage in our model.
We have high expectations for fiscal 'twenty, 'twenty, four and our management team is committed to delivering improvements across all of these areas.
Before handing the call over to Greg.
I want to emphasize one of our core values that I've repeated many times before.
A couch space, we attack hard problems driven by customer outcomes.
With that I'll hand, the call over to Greg to walk you through our results in more detail Greg.
Thanks, Matt and thanks, everyone for joining us we had another strong quarter as we beat guidance across all key metrics against the more challenging macro environment and despite experiencing increased levels of deal scrutiny. We continue to see strong business momentum robust renewal rates and overall healthy demand for our solution, while our <unk>.
To reduce costs and improve efficiency resulted in a meaningful outperformance of our operating loss guidance.
We are pleased with our execution in the quarter.
I'll now walk you through our fourth quarter and full year fiscal 2023 financial results in more detail.
Total annual recurring revenue or <unk> was $163 $7 million at the end of the fiscal year, representing 23% growth year over year or 24% growth year over year on a constant currency basis.
Revenue for the fourth quarter was $41 $6 million, an increase of 19% year over year and $154 $8 million for the full year, an increase of 25% year over year.
In addition to strong subscription revenue growth this quarter revenue benefited from continued strength in professional services, which we remind you is nonrecurring and does not appear in our era number nor customer count.
Subscription revenue for the fourth quarter was $38 $1 million, an increase of 16% year over year and $142 $9 million for the full year, an increase of 23% year over year.
Professional services revenue for the fourth quarter was $3 $5 million, an increase of 53% year over year and $11 $9 million for the full year, an increase of 64% year over year, we do not anticipate the same degree of strength in professional services in fiscal 'twenty 'twenty, four and expect contribution as a percentage of revenue to be slightly below recent.
Levels.
We exited the year with 675 customers an increase of 17 net new customers from the third quarter.
Our <unk> per customer performance in the fourth quarter was $242000 up from $231000 in the third quarter and indicative of growing wallet share we have with large customers. In fact, the number of customers spending over $1 million in air are grew 46% in fiscal 2023.
As a reminder has capella continues to grow and revenue contribution we expect <unk> per customer growth could moderate or decline in future quarters.
Our dollar based net retention rate continues to exceed 115%.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses results of operation and share count on a non-GAAP basis.
In Q4, our gross margin remained best in class at 86, 3%. This compares to a gross margin of 88, 7% a year ago and 88.0% last quarter our.
Our gross margin for the full fiscal year was 87, 6% slightly lower than our fiscal year 2022 of 88, 4% due to an increased mix of capella as well as professional services as a reminder, as capella mix increases we expect gross margin will decline over time.
Turning to expenses, we continue to invest to capture the generational opportunity, we see in front of us, but our focus on improving the efficiency of our growth.
Our sales and marketing expenses for Q4 were $26 $7 million or 64% of revenue compared to $22 $2 million or 63% of revenue a year ago for the full fiscal year, our sales and marketing expenses were $101.3 million or 65% of revenue compared to $85 $4 million for 69% of <unk>.
Revenue in the prior fiscal year.
Research and development expenses for Q4 were $12 $9 million or 31% of revenue compared to $12 $3 million for 35% of revenue a year ago for.
For the full fiscal year, our research and development expenses were $49 $7 million or 32% of revenue compared to $48 $3 million or 39% of revenue in the prior fiscal year.
During the past year, we continue to thoughtfully invest in our as a service offering as well as in additional features to bolster our platform offering.
General and administrative expenses for Q4 were $6 $3 million or 15% of total revenue compared to $5 $7 million or 16% of revenue a year ago for the full fiscal year, our general and administrative expenses were $25 $9 million or 17% of revenue compared to $21.0 million or <unk> <unk>.
19% of revenue in the prior fiscal year.
non-GAAP operating loss for Q4 was $9 $9 million or a negative 24% operating margin compared to an operating loss of $9 $1 million or a negative 26% operating margin a year ago.
Operating loss for the full fiscal year was $41 $3 million or a negative 27% operating margin compared to an operating loss of $45 $5 million or a negative 37% operating margin in the prior fiscal year.
During the fourth quarter. In addition to ongoing efforts to improve operational efficiency that Matt talked about we identified additional opportunities for cost optimization and took proactive measures to improve our margin profile and accelerate our path to profitability. This.
This included optimizing our head count by approximately 5% largely from rigorous performance management and roll emanation incremental to this natural leverage embedded in our model. We anticipate that these actions will result in approximately $4 million of net savings in fiscal 2024, we will monitor market conditions and selectively manage our <unk>.
Head count to align with our strategic initiatives, while improving operating margins.
non-GAAP net loss attributable to common stockholders for Q4 was $8 million or negative <unk> 18 per share for the full fiscal year net loss was $45 million or negative <unk> 90 per share.
Turning to the balance sheet and cash flow statement, we ended Q4 with $168 million in cash cash equivalents and short term investments, we remain well capitalized to execute against our long term growth strategy.
Our remaining performance obligations or our P O totaled $165 $9 million at the end of Q4, an increase of 3% year over year, we expect to recognize approximately 71% or $117 $2 million of total RP O as revenue over the fiscal year, 'twenty, 'twenty, four which represents 19% year over year growth.
We note that our total RPM performance has been impacted by year over year contraction in billings terms as some customers are electing shorter term contracts to the macro uncertainty and because our sales plans no longer incentivize multiyear contracts as aggressively.
Operating cash flow for Q4 was negative $10 $2 million and for the full year it was negative $41 $2 million.
Free cash flow for Q4 was negative $11 $8 million or a negative 28% free cash flow margin free cash flow for the full year was negative $46 8 million or negative 30% free cash flow margin. We are pleased with the material improvement we have made in our free cash flow profile and remain committed to driving further improvement.
Now I will provide guidance for Q1 and the full year fiscal 2020 for.
As Matt discussed, we continue to see solid momentum across our industry and support a broad based digital transformation initiatives and our pipeline remains strong.
Are there more we anticipate that incremental growth drivers, including our expanded product capabilities enhance partner ecosystem and improved go to market motion will continue to contribute to our momentum in fiscal 2024.
These factors in addition to excellent renewal rates gives us cautious optimism that we can sustain and build upon the momentum we've achieved since going public.
That said, we are mindful of the macro headwinds impacting it spending and are monitoring the environment and the impact on our business closely including bookings pipeline and pipeline conversion retention and expansion rate deal sizes sales cycles logo acquisition and sales productivity.
As such our outlook prudently embeds, an elevated degree of conservatism across all of these forward looking metrics to account for this uncertainty.
In addition, we have taken additional steps to put us in a position to quickly respond and make changes to our operating model should the need arise.
Additionally, I'd like to remind everyone that as opposed to the annual credit portion of our Capella business. The on demand portion is not currently countered <unk> and as such we're factoring this emerging dynamic in our outlook.
Lastly, I want to highlight a change in how we plan and forecast for Capello revenue recognition historically, we assumed consumption to be approximate straight line, but now assume a true consumption pattern and customer usage to ramp over the contract period, especially for new logos and enterprise customers, who migrate to capella.
While the impact is not material to revenue in Q1 fiscal 'twenty 'twenty four we do expect a negative impact to the full year revenue of approximately $2 million, representing an approximately 1% year over year impact of growth relative to our prior recognition method with.
With these factors in mind for the first quarter of fiscal 'twenty 'twenty four we expect total revenue in the range of $39 5 million to $40 $1 million or a year over year growth of 14% at the midpoint we.
We anticipate a are in the range of $169 2 million to $172 $2 million, which represents 22% growth year over year at the midpoint.
We expect our non-GAAP operating loss in the range of negative $14 9 million to negative 14 $1.1 million.
For the full year of fiscal 'twenty 'twenty four we expect total revenue in the range of $171 7 million to $174 $7 million from a year over year growth of 12% at the midpoint, our 13% before the revenue recognition change.
As a reminder, we've historically seen variability with respect to the implementation timing certain enterprise deals, which impacts our revenue visibility along with a new or migrated capella customers. We therefore continue to view <unk> as a better indicator than revenue of the strength of our business. We expect they are in the range of 190 million to 194.
<unk> million dollars or 17% growth at the midpoint.
And finally, we expect a non-GAAP operating loss in the range of negative 44 million to negative $40 million with that Matt and I are happy to take your questions operator.
Thank you and at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys one.
One moment, please while we poll for questions.
And our first question comes from the line of Raimo <unk> with Barclays. Please proceed with your question.
Thank you and congrats on another solid quarter first question for you and then I have a follow up for Greg.
Matt If you if you think about the current environment, you talked about the headwinds longer daily.
Good decision, making cycles et cetera, but you still seem to be performing pretty well can you talk a little bit about the actions you have taken in terms of sales approach or.
Accounts, you want to land et cetera to kind of enable you to kind of come up with these really solid Q4 numbers, but also with a very solid guidance for the next year.
Thank you.
Yeah.
Hey, Raimo good afternoon.
As we think about how we perform against the environment, we're being very maniacal that separate the thing that we can control from the things that we can't.
And I think throughout the call, we'll probably talk about that more.
As we indicated in the prepared remarks, there were some things outside of our control that intensified in the quarter.
Longer sales cycles elevated decision, making criteria focus on economic value.
Some customers, taking a little bit longer to move something into production.
And we take great pride in the fact that as we shift over to the things that we can control operational rigor really understanding our sales cycle showing up it's true.
Partners to our end customers really articulating the value of couch base and consolidating multiple solutions into one providing a solution with grade total cost of ownership, particularly with with capella executing on initiatives with our partnerships that have really opened up with.
Our expanded go to market with the Capella offering.
We feel great about our ability to overcome some of those intensified environments and really deliver solid results across the business.
Spent a lot of time talking about couch base of a story of acceleration.
And a lot of that emphasis has been on top line, how do we grow the company faster how do we increase the mix of Capella on top of all of those things. This quarter were particularly proud with what we've done to accelerate the leverage in the business and spending more time and attention on the operational side.
So from the standpoint of being in today's environment, We talk a lot about deal with the world. The way it is not the way we want it to be.
And understanding that there are economic forces outside of our outside of our control really leaning in and making sure that we are totally focused on what we can control across product go to market and our teams.
And that collective effort and that focus and the dedication of team couch base really allowed us to put up.
A great result, and set us up for a.
A great fiscal year ahead.
Okay, Perfect and then one for Greg.
No.
Well done on the improved leverage can you just remind us how you think about.
And the path to breakeven profitability.
And the drivers that will get you Dan Thank you and congrats from me.
Yeah. Thanks again for your comments, Yeah look we've seen obviously improved results in the quarter for the year in terms of leverage.
As we talked about our prepared remarks, we are continuing to be very focused on that things around things like the rule of 40 is really coming into focus where we've increased.
Increased by 10 points in the prior year, and we'll be very mindful of that going forward.
As Matt stated a couple of things that we're really focused on is growing but growing with greater efficiency and greater leverage and so you saw some of the actions. We took we talked about in the fourth quarter.
We put other actions in place that haven't even sort of bear fruit yet in terms of you know.
<unk> cost management, and along with continuing to be a growth company. We think that we're going to continue to see future leverage as well as moving towards that path to profitability and breakeven we haven't put a timeframe on that yet, but we are committed to getting there.
Perfect. Thank you.
Our next question comes from the line of Howard Maui Guggenheim Securities. Please proceed with your question.
Great. Thanks for taking my question.
I have one for Matt and one for Greg So first for Matt.
As you progress towards a more frictionless buying experience can you comment on if most of new capella customers on AWS or are they buying directly from the marketplace, where is there usually a couch based sales rep involved and then with respect to an Azure and G. C P and I understand that the general availability now which is great.
When will propel will be available for direct purchase on those market places and I guess, just more broadly how how significant do you think availability on the Hyperscale marketplaces will be two expanding our capella its customer base.
Hi, Howard I appreciate the question.
As we think about our.
Efforts on overall efficiency on go to market. We spent a lot of time talking about our highly instrumented direct sales model and complementing that with.
Well, what we referred to as a buyer from model how do we engage developers early in their consideration in buying cycle and create a great experience for them as they're evaluating technologies and understanding the value of the couch space.
We believe that with the capella offering we're going to dramatically increase that that buyer from experience that our innovation roadmap.
Integrating with developer tools, and creating an even more frictionless experience and you know new new uis all of these factor into.
That complementary emotion that we can then instrument against our.
Direct sales engagement.
If we go back one year ago, we were only in market with server on AWS and this year, we rounded out the portfolio on Capella, we're now in.
Market with all three hyper scaler on both server and mobile so to answer that question. We think there is tremendous upside in.
The portfolio that our sellers and our partners are now bringing to market.
Anytime we have capella is part of our offering our ability to dramatically increase the engagement with our partners.
It is a very real factor for us and you saw with AWS, We announced a strategic collaboration partnership which was a big milestone for US, we anticipate reaching similar levels with Google and Azure and now that we are in market with the with those solutions.
As it pertains to actually getting new logos over the line.
The great thing is we're benefiting from.
Ways in which customers want to consume the technology they want to buy it through a cloud marketplaces. That's open to them if they want to engage with us in more traditional ways. We can do it that way.
And one of the things that we were very proud of in Q4 is actually a majority of our net new logos came from Capella. This time around and we benefited from that mix of both partner leverage and our go to market teams ability to continue to evangelize capella and what it can do for them.
Solving their development needs, but doing it in a more efficient and lower total cost of ownership ways. So.
I'd put that in squarely in the bucket of what we can control and the intersection of how we innovate.
And and improve our go to market.
As far as what we're working on again big Big upside there and we do think that will be transformational for the company as we go forward.
Okay, great great. Thanks, so much Matt. Thanks, that's really helpful color and then if I could squeeze one in for Greg can you just help us better understand the discrepancy between totally on our guidance for its for 16 and 19% growth in total revenue guidance for 11% to 13% growth I understand that there's you know you just got the capella of revenue recognition.
And that's about a percentage point.
Still get back out of it still like a 4% to 5% Delta or percentage point Delta is it is that primarily due to an increase in committed self managed contracts that you know so that you can call that an air arent, but you don't recognize revenue until later on I can see that's is that still the primary primary difference.
That makes sense.
Yeah Howard Thanks.
Do you have you on the call of course, and yes, it makes sense, but I'd say, there's two there's two drivers that sort of delta.
Delta between the growth on the ore and the revenue. The first as you mentioned is capella as we get more capella and now, especially with that updated revenue recognition model, where we're doing it has consumed and particularly as you have migration to new logos those things take a little bit of time to ramp from a consumption perspective that that'll that'll create some some delta in turn.
The revenue growth versus the AOR growth and the second thing I would add is that <unk>.
Services, obviously as we talked about services is not part of they are it is part of revenue last year, we had an outperformance in services I mean, our services grew 64% last year.
Ahead of what we'd expected and we're not expecting it to grow anywhere near that in fact it will.
A slight negative growth this year. So that's what those two things combined are really what's creating that sort of.
Dislocation if you will between the growth rate, you're seeing on a or in revenue.
Okay, Great I appreciate the responses I'll see the floor now thank you.
Thank you.
Our next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed with your question.
Thank you very much congrats on the quarter.
Talk about.
Yes.
Right.
And our customers.
One of the things.
Uhm.
Alright good.
Okay.
Free cash sorry cash started interrupt you can't hear you very well.
[noise] better.
A little bit of hedge.
Alright.
So curious to get your thoughts on.
The initiatives that touch basis.
Okay.
Quickly as possible.
The product business.
The market.
Several quarters ago.
Or are the trends, you're seeing with respect to consumption.
Projects.
Okay.
Interesting.
So in other words.
Yes.
Yeah.
On the consumption trends.
Thanks.
Great.
Okay.
Thank you so much.
Cash.
You were a little hard to hear I think I picked up most of it.
And I'll sort of restate, what I heard an answer a question if I Miss anything.
Please feel free to come back.
I think generally noting that we've been in market with capella.
And understanding that.
There's big upside there what are we seeing in terms of you know.
Adoption from Capella, and Furthermore, consumption and are are there any patterns emerging.
So what I would say generally speaking is.
Capella is dominating our customer conversations both new logos and migrations.
And we mentioned some some use cases in the quarter at a very high level for both new logos and migrations, which are which I'll touch on in a second.
Generally speaking I will tell you that when we get somebody into the capella offering whether it be a new logo or an existing customer we are seeing the pace of growth in consumption being ahead of what we would see in our traditional model.
And that is aligned to what we would've expected.
In light of the fact that we really work on ease of operational efficiency and opening up new use cases, and being able to directly engage the developer leveraging things like telemetry to understand you know where customers may be having challenges and then being able to offer them.
Sequencers advisor even services to.
Accelerated in any of those things are or overcome any barriers.
As it pertains to use cases.
I think we're excited that we're seeing it leveraged across a vast variety.
No verticals and use cases.
And in Q4 alone on Capella, we talked about.
A gaming company that.
That application was for internal bug reporting for their development.
Development process, enabling their developers to be that much more agile in responding to product feedback.
That's very different from one of our migrations, which was a large online marketplace in Europe , where the application running in Capella is managing a 30 million item product catalog across many retailers and so you know a couch space is a broad based platform that services highly interactive.
They've applications and that pertains to telco and finance and professional services and edge use cases, and we are seeing it play out in the market that.
The offering and the consumption model of Capella offers additional benefits.
Couch space hasn't had and the product Arsenal until we've been out to market with it.
We've had extremely high expectations for the impact that that's going to have to our business and we're seeing that play out in <unk>.
In the results and you know in in the pipeline on a go forward basis, so consistent with what we've been talking about we're seeing that in and remain very bullish on you know what this has in store for us as we go forward.
And our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.
Great Hey, good afternoon, guys can you hear me okay.
Loud and clear.
Great. Yeah. Thanks cashes questions I always learn a lot from it I could not hear that one so I just.
Just wanted to make sure.
I met on partners, obviously, you're.
Excited about partners deal sizes are getting bigger you're talking about a more efficient go to market can you give us a flavor of you know I guess first how partners. If at all are influencing deals today and that you know down the road what might constitute success either from say.
[noise] of deals touched or how we might think about sort of the evolution of partners driving your business and then I had a follow up for Greg. Thanks.
Yeah, Rob I appreciate the question.
No.
Partners are a foundational element of our strategy and it's not just one partner tight.
As I think about the impact obviously, we are very excited about our expanded partnerships with the with the C. S piece and we think the pace of leverage there is only going to increase is because we have more capella in market at.
At the same time, we have great success with Isps and.
And we also have investments in partnerships with GSI is in addition to resellers and in particular geographies.
You'd be hard pressed rod to find a customer where a partner hasnt been engaged with us in some way and if we analyze the analytics of deal flow and pipeline, we often talk about partner influenced or partner sourced and you can see some variation by quarter or by geography.
And on those various channels.
But we are encouraging our go to market teams to think about partners in every one of their deals.
And are very excited about some of the joint go to market activities that we have with the likes of AWS for converting large customers moving workloads into capella getting at net new workloads in existing customers and quite frankly.
You know really impressed with their desire to go after net new logos for the cloud providers and couch based and Theres. Some really creative things that we can do in terms of you know.
Account mapping leveraging our <unk> installed base, what their coverage to convert people to capella, which is a new logo for for both providers.
And so Greg maybe able to pile on and some of the particular metrics from Q4, but as I think about it it's pervasive across the business and gives us an opportunity to touch our customers and future customers.
And in a way that just expands our leverage exponentially.
Rob I'd, just add to Matt's point I mean, we typically see one third up to upwards of two thirds of our deal activity in a quarter.
Partner source or a partner influence so as Matt said, it is a big and meaningful part of our of our business.
Okay. That's really helpful guys and then thanks, Matt and then Greg just a follow up for you and you know I know you guys had talked about potentially being.
Being able to kind of reach that materiality threshold on capella, perhaps this fiscal year and nice conversion traction and now majority of new customer adds so is it still fair to assume that we might see that broken out later this year. Thanks, a lot guys.
Yeah. Thanks for that Rob Yeah look as Matt said, we are pleased with capella in the traction he saw the customer.
You know impact of having along with other things and I think that's a fair statement, we haven't made any commitments, but I think it's fair to think that you know.
At some point this year, we would.
Begin sharing more more details and information around the capella business.
Beautiful, okay, great guys. Thanks again.
Thanks Robby.
Our next question comes from the line of Matt Hedberg with RBC capital markets. Please proceed with your question.
Great. Thanks for taking my questions guys congrats on the year.
And in your prepared remarks, you talked about some maybe some macro headwinds intensifying as the quarter played on.
You know I guess, Greg could you talk about maybe thoughts around the guidance for fiscal 'twenty. Four did you did you can get sort of additional levels of conservatism like extended deal cycles or any sort of pipeline conversion rates.
Hey, Matt Good afternoon. This is Matt.
The importance of the question I thought I'd start off and then turn it over to Greg.
As we mentioned we did see some dynamics intensify.
And as we thought about the year ahead.
We wanted to come at it with an assumption that those dynamics persist if not get worse.
With that assumption in mind, we took a look across the business and actually had an elevated level of conservatism across things like pipeline generation conversion retention and expansion rates sales cycles deal size logo acquisition, because those things that macro.
Dynamic is outside of our control if.
If you were to run that out that would imply that we would not see an improvement in sales productivity.
That close rates don't improve that we don't have a material impact from capella migrations that we don't have a material increase in new new logo additions with capella and CE migrations and even the deterioration to net retention rates now to be very clear the patterns that we're seeing are in.
In our business are not aligned with the effects of that assumption.
So we wanted to be very mindful of the macroeconomic environment, noting that we don't control. It we don't know how long it's going to persist and then again focus on what we can control and ensure that we're going to do everything possible to whether those dynamics and focus on what we can.
Can I just add just add matches and we carefully and thoughtfully implied that sort of risk adjustment behind our guidance, but as Matt said our guidance does not indicated what I think our current performance is there a growth potential we're very committed to continue this pattern of growth that we've I think demonstrated since and Reacceleration, we've demonstrated since becoming a public company and.
<unk> and delivering more efficiency and profitability, Matt and I and the business had been through some of these challenges not specific this one but other ones and we feel like we're reasonably experienced risk manager then have applied all of that into the guidance and how we're running the business.
Great Great colors. Thank you. Thanks, and then actually break that dovetails into my second question I'll sort of balancing growth and profitability. Obviously you know what.
The success of Capella.
Coming out of your IPO, we talked about a lot of go to market investments to drive broader adoption. So as you look to fiscal 'twenty four or are there incremental things that you think are going to be a top priority.
The best dollar spent on go to market that can get drive continuous success of capella.
Yes, Matt Great question like look again, and hopefully seeing some of that are there sales and marketing efficiency improved this year and we are certainly building.
Building a plan for it.
Next year as you know we made the change he who joined US as the new Aero middle of last year, and he's really been spending not only the first six months of running the business, but also getting things in place to continue to create more more efficiency and set up for better success in the future he's creating new again new models within the sales organization.
Hum as Matt talked about in his prepared remarks, we're hiring what we think are better leaders and so the combination of a number of those things. We believe will allow us to have the growth potential. We believe is there but also create the efficiency. We think is also.
Available for us.
Matt from my chair.
Hum.
It's great for me to think about that we are taking the field. This fiscal year with the best team that couch cases ever had.
And it's not just on the direct sales side to see the level of collaboration and focus across our sales teams.
Matt and his business development team with John is doing on the marketing side and the synergy that's coming together across those on the critical few priorities that are going to give us.
The best return.
It's not just those leaders at the talent that Greg alluded to that we're bringing in underneath them. So I'd say, it's a level of focus that's the level of.
Collaboration the understanding on what are the leverage points are quite frankly, the willingness to lean into areas that may not be a competitive strength for us where we know we can do better.
And so I think there's a lot that you all may not see that we certainly have confidence in seeds for good things to come based on all the hard work on operational initiatives that but I think there's clear alignment on across the company.
Thanks, a lot guys.
Thanks Pat.
Our next question comes from the line of Rudy passenger with D. A Davidson. Please proceed with your question.
Hey, great. Thanks for taking my questions.
Certainly understanding you've got a lot of conservatism on the guide it sounds like on the top line I'm curious to what extent that same conservatism.
You know you're applying to I guess, the operating loss outlook I think some might look at this and say you know over the last two years you guys have added roughly 50 million in revenue you're still guiding to roughly the same operating loss on a dollar basis. It says you had two years ago.
Why aren't you showing more leverage yet.
Yeah, Hey, Rudy Yeah. Thanks for the question again I go back to is if we look at how we performed for fiscal 'twenty, three and particularly as we got later in the year. I think you saw some of that efficiency and leverage fall through to the bottom line. We feel very good about what we delivered last year and like I mentioned earlier.
You know as we think about the rule of 40, and making progress there, but we feel great about having out of 10 points last year to that.
As we go forward, yes, again, we talked about there the prudence that we've added into our guidance and I would say, it's both on the top line and the bottom line.
We're expecting to see more efficiency.
Better better free cash flow position. So there certainly is some some of that.
Risk adjustment to the to the bottom line as well obviously, if the top line materializes, we believe that that will mostly fall through as we progressed through the year. So I think it's a combination of again.
Again us executing for what we can control generating growth, having that fall through as well as providing more efficiency and seeing the sort of the multiplier effect that the bottom line.
Okay.
Okay, and then and then on Capella in E systems was the majority of new customers for Capella customers in Q4.
I imagine those are obviously smaller deals relative to some of the other customers who've signed but how should we think about it in terms of net new <unk>, just what percentage of that in the quarter came from capella.
Still too early to break any of that out.
Yeah really good question, Yeah, we haven't broken any of that Capella specifics out I would I would say that your your points about them being smaller deals yet, but we've said that in the past, but it is the case I would also say that we're also very focused as we think about with the field team and with customers there.
We want people could do.
Smaller sized deals because that typically is the quicker and easier way and getting customers up and running and using capella and we believe if we can get them going and get them started that will lead to great things in the future. So I would continue to expect to see generally smaller deal sizes, we talked about the <unk> per customer and that could moderate over time as we see more.
Capella come in with smaller deal sizes, but we do think that's the way to go.
Greater capella adoption, which should be a fuel our growth and even even the net retention rate over time. So that's how we see it as I mentioned to Rob.
Question previously we believe at some point this year, we will break.
[noise] breakout the Capella Metro signals are sharing some of that information you're looking for.
Okay, great. Thanks for taking my questions.
Thank you.
Okay.
Our next question comes from the line of Sanjay Singh with Morgan Stanley . Please proceed with your question.
Great. Thank you that's the answer.
I want to ask one question on sort of the theme of consolidation on the last earnings call you spoke quite a bit about how customers are coming to you to sort of consolidate two or three other no sequel cloud databases to capella.
I want to ask how would that theme is sort of impacting the current quarter or Q4.
And then how big of a team will that be in fiscal year, 'twenty, four and maybe particularly looking at fiscal year 'twenty four if you're parsing out how much of that consolidation is sort of a cost argument versus product argument.
What are some of the levers that you can maybe pull to sort of keep that theme of consolidation going.
I. Appreciate the question look I think this is pretty fundamental to our value proposition and quite frankly has been a big part of the mindset that we've had in developing our architecture from the very outset as a company we've put a decade of.
Innovation into ensuring.
At our modern cloud database can support multiple modalities that it can run from cloud to edge.
You you'd be hard pressed to find a company that was talking about real time analytics on top of an operational database earlier.
This was on we sort of predicted that today's applications would require vs. These characteristics.
I think part of the success that you've seen in couch space with large enterprise customers is that we've been helping.
Helping them understand how they can put more and more applications relational offload you know things like that re platforming applications net new inside of a single platform.
Can be a cash adjacent on database can support things like full text search of venting and they have you know connectors into other adjacencies.
That paradigm has never been more important than when we overlay that with the ease of consumption of capella.
I think this is critically important.
And and how companies are choosing databases and picking strategic vendors for them.
For for a go forward basis, obviously, when there's economic pressure companies are going to be even more focused on how can I be more productive with less resources and or extract cost.
Each company is different.
Industries are going through different things, so whether it's about more productivity or less cost I think we can equally good at at both of those and never hasn't been has there been more focus on that part of the conversation in that part of our value proposition than there is now.
So I think we saw that in Q4, I think we expect to see that as we go forward and as we continue to innovate and expand the types of applications that we can support for developers with capella.
So we think that's going to layer on.
The amount of upside in the in the business with with this element in this dynamic that we think is going to persist for a long time.
Excellent. Thank you and if I can squeeze in a quick second question.
Hum on your contract terms have you broken out what the mixes within your existing customer base and then how long do you expect the shifts being contract turns to continue is there any way you can sort of put guidelines around that to help us understand at which point or P. O can become a more meaningful for them.
Metric again.
Yeah. Good question, we haven't broken that out on the contract terms, we've talked about just generically in the past about our weighted average terms.
So we haven't broken that out specifically, we did mention that the terms are a bit shorter theyre not outside the historical norms, but they're on the low side, given what's going on in the macro and as we said in our guidance, we expect that to.
Assume tobacco stays the same or gets worse and the implication of that would be that the macro or the.
Contract terms.
With stay the same or potentially get a little shorter but that's.
That's sort of the best view, we have right now.
And again, we'll continue to kind of update you as we get more information, but that's what was assumed right now.
Perfect. Thank you.
And our next question comes from the line of Robert Galvin with Stifel. Please proceed with your question.
Hi, This is Rob Calvin on for <unk>. Thanks for taking the question I was wondering if you could touch on the capella on demand trends that you saw during the quarter. I know Q2 is a big quarter Q3, It was lighter and I'm, just wondering what Q4 trends or like thanks.
Yeah. Thanks, Rob appreciate it.
Appreciate the question too looked at Capella on demand continues to be just like the rest of the capella business continues to be performing well. There's a lot of people that are again willing to come in and want to try it does not make that commitment and we see that across the marketplaces.
Well as you know with.
With us directly and so we continue to see that we talked about earlier in the year. It was not a capella deal, but we do see that on demand marketplace activity, leading to you know.
Regular contracting and longer term deals. So we're we're excited that we're seeing customers using the on demand.
The opportunity to sort of getting used to it and get into get into capella. So.
We feel good about where that is trending along with the rest of the paccar business.
Great. Thank you.
Thank you.
And we have reached the end of the question and answer session I'll now turn the call over to Matt Kane for closing remarks.
Thanks, operator.
To recap, we had a strong quarter and a strong year, we remain excited about our opportunity with capella due to some very big trends in our favor like digital transformation acceleration to the cloud and innovation at the edge. We are cognizant of the macro environment and are sharply focused on execution during times like this.
Also building, what we believe will be a very exciting future. Thank you all for joining us and I look forward to speaking with you next quarter.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
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