Q2 2024 MongoDB Inc Earnings Call
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Good day, Thank you for standing by and welcome to the Mongo DB second quarter fiscal year 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
Ask a question during the session you will need to press star one on your telephone you will then hear an automated message and advising your hand is right to it.
Your question. Please press star one again.
Please be advised that today's conference is being recorded.
I would now like to turn the conference over to your Speaker for today Mr. Brian did you. Please go ahead, Sir the floor is yours.
Thank you Lisa good afternoon, and thank you for joining us today to review Margaret <unk> second quarter fiscal 2024 financial results, which we announced in our press release issued after the close of market today.
Joining me on the call today are Dave <unk>, President and CEO of Margaret ebay, 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.
Much 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 the results of operations and financial conditions that cause actual results to differ materially from our expectations.
For a discussion of the material risks and uncertainties that could affect our actual results.
Please refer to the risks described in our quarterly report on Form 10-Q for the quarter ended April 32023 filed with the SEC on June 2nd 2023.
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 measure 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 to the most directly comparable GAAP financial measure with that I'd like to turn the call over to Dave.
Thank you, Brian and thank you to everyone for joining us today I am pleased to report that we had another exceptional quarter as we continued to execute well despite challenging market conditions I will start by reviewing our second quarter results before giving you a broader company update reached.
We generated revenue of $424 million or 40% year over year increase and above the high end of our guidance Atlas revenue grew 38% year over year, representing 63% of revenue and is now a one 1 billion plus revenue run rate product.
We generated non-GAAP operating margin operating income of 79 million for a record 19% non-GAAP operating margin.
And we had another solid quarter customer growth ended the quarter with over 45000 customers.
Overall, we delivered an exceptional Q2, we had a healthy quarter of new business acquisition led by continued strength in new workload acquisition within our existing customers from a new logo perspective, we added 900, new customers in the quarter, our direct sales team had another strong quarter enterprise customer additions.
Enterprise advanced and other non Atlas business significantly exceeded our expectations another indication of our strong product market fit and the appeal of our run anywhere strategy.
Moving onto Atlas consumption trends the quarter played out slightly better than our expectations, Michael will discuss consumption trends in more detail.
Finally retention rates remained strong in Q2, reinforcing the mission critical that criticality of our platform even in a difficult spending environment.
As we've told you in the past our market is different from most other software markets because the unit of competition as a workload not a customer we started customer relationship by acquiring the first workload and we grow from there acquiring incremental workloads over time.
Over the last few years, we have oriented our entire company around winning more workloads.
Starting with product at our New York user conference held in June we made a number of product announcements that will position us to capture more workloads faster.
We introduced Atlas stream processing, which enables developers to work with streaming data to build sophisticated event driven applications. The flexibility of the document model and the power of the marketing be query language provide a compelling and differentiated way to process streaming data compared to alternative approaches. Our early access program is meaningfully oversubscribed.
As customers realize they can use a familiar and easy approach to work with streaming data and immediately see value.
We announced the general availability of relational migrate or which makes it easier for customers to migrate their existing relational applications to market we.
We are seeing increased adoption across industries and geographies for example, a leading international retailer was able to leverage relates to migrate or to dramatically accelerate their migration of Oracle.
We also announced Atlas vector search, which enables developers to store index inquiry Vectren battings instead of having to bolt on vectors search functionality separately, adding yet another point solution and creating a more fragmented developer experience developers can aggregate and process. The vectra Ais data they need to build out applications. While also.
Using marketing to aggregate and process data and metadata.
We're seeing significant interest in our vector search offering from a large and sophisticated enterprise customers, even though it's only still only in preview as one example, a large global management consulting firm is using Atlas Atlas vector search for an internal research application that allows consultants to semantically search over $1 5 million expert interview.
Transcripts.
Over time, AI functionality will make developers more productive to the use of cogeneration and code assist tools that enable them to build more applications faster developers will also be able to enrich applications with compelling experiences by enabling integration with either proprietary or open source large language models to drill.
More impact now instead of data being used only by data scientists to drive insights data can be used by developers to build smarter applications that truly transform a business. These applications will be exceptionally demanding requiring a truly modern operational data platform like Mongo DB. In fact, we believe <unk> has even stronger.
<unk> advantage in the world of AI.
First the document model's inherent flexibility and versatility renders it a natural fit for AI applications developers can easily manage and process various data types all in one place.
Second AI applications require high performance parallel computations and the ability to scale data processing on an ever growing base of data.
<unk> supports this features with with features like charting and auto scaling lastly, it is important to remember that applications at the same demands as any other type of application transactional guarantees security and privacy requirements Tech search and App analytics and more our developer data platform. It gives developer a unified solution.
And to build smarter AI applications.
We are seeing these applications developed across a wide variety of customer types and use cases for example observed that AI is an AI startup that Leverages 40 billion parameter L. L M to provide customers with intelligence and coaching that maximize the performance of their frontline support and sales teams observed out AI processes and run miles on millions of support touch point.
Daily to generate insights for their customers.
Of this rich unstructured data is stored in manganese.
Observe that AI chose to build on money to be because we enable them to quickly innovate scale to handle large and unpredictable workloads and meet their security requirements of the largest enterprise customers.
On the other end of the spectrum is one of the leading industrial equipment suppliers in North America. This company relies on Atlas and Atlas device synced to deploy AI models at the edge.
To their field teams mobile devices to better manage and predict inventory in areas with poor physical network connectivity. They chose <unk> because of our ability to efficiently handle large quantities of distributed data and to seamlessly integrate between network edge and their back end systems.
As much as we innovate our products. We also continuously innovate on how we engage with our customers. We are highly focused on reducing friction in the sales process. So we can acquire more workloads quickly and cost effectively given the large size of them our market opportunity.
Historically, the most significant source of friction has been negotiated with customers to secure an upfront Atlas commitment since it can be hard for customers to forecast consumption growth for new workload.
Given our high retention rates and the underlying consumption growth several years ago, we began reducing the importance of upfront commitments and our go to market process to accelerate work loaded acquisition.
This year, we took additional steps in that direction. For example, we no longer incentivize reps to sign customers to one year commitments. Obviously this has short term impacts on our cash flow, but positions us better for the longer term by accelerating workload acquisition.
We are pleased with the impact these changes have had in the business in the first half of the year, specifically, new workload acquisition has accelerated especially within existing customers.
We believe that our efforts to reduce friction are resulting in more efficient growth and we will always look for ways to improve our go to market approach to make it even easier for customers to bring new workloads onto our platform.
Now I'd like to spend a few minutes reviewing the adoption trends among DB across our customer base.
Customers across industries, including Renault who'd suite and forward are running mission critical projects among <unk> Atlas leveraging the full power of our developer data platform.
One of the 2023 Margaritaville North American Innovation Award winners as Ford with a focus on innovation quality and customer satisfaction Ford as a leader in the automotive industry in a household name around the world Ford is committed to developing advanced technologies that enhance the safety performance and sustainability of it vehicles their day.
Explorer and transportation mobility cloud applications aggregate customer vehicle data from 24 different sources at a volume ranging up to 15 terabytes since migrating to marketing be outlets from their previous solution Ford has seen a 50% performance improvement and faster rewrite times.
Cathay Pacific foot locker in market access are examples of customers turning to Mongo DB to free up the developers' time for innovation, while achieving significant cost savings Cathay Pacific Hong Kong's home airline carrier operating in more than 16060 destinations worldwide turned to market would be on their journey to become one of the first airlines to create.
A truly paperless flight deck flight folder their application built on market would be consolidated dozens of different information sources into one place and includes a digital refueling feature that helps crews become much more efficient with fueling strategies savings significant flight time in costs since the flight filter launch Cathay Pacific has completed more than three.
340000 flights with full digital integration in the flight deck. In addition to the greatly improved flight crew experience flight times have been reduced and the digital refueling has saved eight minutes on the ground on average all these efficiencies have helped the company avoid the release of 15000 tonnes of carbon and save an estimated $12 5 million.
<unk>.
Power Ledger Wells Fargo and system on our among customers turning to <unk> to modernize existing applications system, one our customer acquisition marketing company acquired map Quest in 2019 at the time of the acquisition Mac Quest had a fragmented architecture that mixed disparate data persistent technologies with third party services.
System, one selected <unk> Atlas as a key piece of Macbooks architecture transformation and has realized estimated cost reductions of 75% and performance improvements of 20% over its prior relational database solution.
<unk> is planning a number of future projects that we'll use Atlas search and time series collections to improve the user experience and create a feedback loop on location based relevancy in different cities.
In summary, I'm incredibly stoked with our second quarter results, our ability to win new workloads remained strong and our run anywhere strategy is resonating with customers. While it's early days on AI. We continue to see evidence that <unk> will be a platform of choice for AI applications. Just like we are for other modern and demanding applications, we continue to invest to maximize our <unk>.
Long term potential but that here's Michael.
Thanks, Dave as mentioned, we delivered a strong performance in the second quarter, both financially and operationally.
Again with the detailed review of our second quarter results and then finish with our outlook for the third quarter and full fiscal year 2024, first I'll start with our second quarter results total revenue in the quarter was $423 8 million up 40% year over year as Dave mentioned, we continue to see a healthy new business environment, especially in terms of acquiring new workloads.
Within existing customers.
This is confirmation we remain a top priority for our customers and that our value proposition continues to resonate even in this market shift.
Shifting to our product mix, let's start with Atlas Atlas grew 38% in the quarter compared to the previous year and represents 63% of total revenue compared to 64% in the second quarter of fiscal 2023, and 65% last quarter in Q2 slightly declined as a percentage of revenue due to the exceptionally strong performance of our non Atlas business underscoring the.
Demand for <unk> to be regardless of where our customers are in their cloud adoption journey. As a reminder, we recognize Atlas revenue primarily based on customer consumption of our platform and that consumption is closely related to end user activity of the application, which can be affected by macroeconomic factors let.
Let me provide some context on atlas consumption in the quarter.
<unk> growth in Q2 was slightly better than our expectations. As a reminder, we had assumed Atlas will continue to be impacted by the difficult macro environment in Q2 and that is largely how the quarter played out.
Turning to non Atlas revenues EA.
He has significantly exceeded our expectations in the quarter and we continue to have success selling incremental workloads into our existing customer base. We continue to see that our customers regardless of their mode of deployment are launching more workloads, among <unk> and moving towards standardizing on our platform. The EBITDA revenue outperformance was in part a result of more multiyear deals than we had it.
In addition, we had an exceptionally strong quarter in our other licensing revenues on our last call. We mentioned that we would benefit from a few large multiyear licensing deals most notably the renewal and extension of our relationship with Alibaba. We also closed some additional multi year licensing deals in the quarter, which was a meaningful contributor to our outperformance and another side.
The popularity of Mongo DB and the success of our run anywhere strategy as a reminder, under ASC 606 for both EMEA and licensing contracts. The term license component even for multiyear deals is recognized as upfront revenue.
Turning to customer growth during the second quarter, we grew our customer base by approximately 1900 customers sequentially, bringing our total customer count to over 45000, which is up from over 37000 in the year ago period of our total customer count over 6800 are direct sales customers, which compares to over 5400 and a year ago period the growth in our <unk>.
Customer count is being driven primarily by Atlas, which had over 43500 customers at the end of the quarter compared to over 35500 in the year ago period. It is important to keep in mind that the growth in our Atlas customer count reflects new customers demand going to be an addition to existing EA customers, adding incremental Atlas workloads.
Let me double click into our direct customer count as Dave mentioned, we are becoming increasingly sophisticated in how we engage our customers, but some of those most motions result in the line between our direct sales and our self service channels, becoming more fluid.
I thought it'd be helpful to highlight two particular inter channel dynamics that impact the channel breakdown of our reported customer counts.
These customer movements represent less than 1% of our <unk> we.
We do expect both of these trends to continue into the future and so we wanted to make sure you understood how they affect our reported customer counts by channel.
First we are having increasing success leveraging cloud provider self service marketplaces to drive new customer additions growth in card marketplace volumes as a major secular trend and we are the only ISP available on all three hyperscale or marketplaces customers can deploy Atlas and second through cloud provider consoles and can pay for it by drawing down their.
<unk> cloud commitments. This further reduces friction as it bypasses the need for a contract altogether for this reason our direct sales team has been directing certain new prospects to sign up using self serve marketplaces. We've added several hundred customers using this approach in recent quarters and these customers show up on our self serve customer count, even though we have a direct sales relationship with them.
Second we continually review and analyze product usage signals to determine the growth potential of our customers. Because we are focused on velocity and efficiency of new workload acquisition, we're very careful not to deploy our reps on accounts, where we don't see significant incremental benefit from sales rep coverage. If we determined that a direct sales customer can be supported more cost effectively in the cell.
Sort of channel.
Prefer to free up the reps time to focus on winning more new workloads. So far this year, we've moved over 300 small and mid market direct sales customers to the self service channel.
Moving on to <unk>, we had another quarter with our net <unk> expansion rate above 120%.
We ended the quarter with 1855 customers with at least $100000 in <unk> and annualized <unk>, which is up from 1462 in the year ago period.
Moving down the income statement I'll be discussing our results on a non-GAAP basis, unless otherwise noted.
Gross profit in the second quarter was $329 million, representing a gross margin of 78%, which is up from 73% in the year ago period.
It is important to keep in mind that this quarter, we saw exceptional performance of our EMEA and licensing revenue, which contains a large upfront license component and very high margins and therefore, we wouldn't expect to repeat this performance.
Our income from operations was $79 1 million or 19% operating margin for the second quarter compared to a negative 4% margin in the year ago period, our strong bottomline results demonstrates the significant operating leverage in our model and our clear indication of the strength in our underlying unit economics. The primary reason for our operating <unk>.
<unk> results versus guidance as our revenue outperformance.
Net income in the second quarter was $76 7 million or <unk> 93 per share based on $82 5 million diluted weighted average shares outstanding this.
This compares to a net loss of $15 6 million or <unk> 23 per share on $68 3 million basic weighted average shares outstanding in the year ago period.
Turning to the balance sheet and cash flow.
We ended the first quarter with one point in the second quarter with $1 9 billion in cash cash equivalents short term investments and restricted cash.
Operating cash flow in the second quarter was negative $25 $3 million after taking into consideration approximately $2 million in capital expenditures and principal repayments of finance lease liabilities free cash flow was negative $27 $3 million in the quarter. This compares to negative free cash flow of $48 6 million in the second quarter of fiscal 2023.
Three things of note on our cash flow performance in the quarter first as many of you know Q2 tends to be our seasonally lowest collections quarter of the year because of low contract volumes in Q1, as evidenced by our Q1 ending accounts receivable balance.
While our revenue reflects the ASC 606 treatment of multi year licensing deals most of multi year contracts are still billed annually. So there is no equivalent benefit to cash flow.
Finally, as Dave mentioned, we continue deemphasizing the value of upfront commitments, so we're seeing fewer of them and.
In other words, we are intentionally collecting less cash upfront in order to win more workloads more quickly as evidence of this we grew Atlas revenue, 38% year over year, while Atlas dollars committed upfront actually declined by 15% year over year lower upfront commitments only impact the timing of when our customers pass not the total payment but this.
Trend of declining upfront commitments will impact the relationship between our non-GAAP operating income and operating cash flow in the medium term.
I would now like to turn to our outlook for the third quarter and full fiscal year 2024 for the third quarter, we expect revenue to be in the range of $400 million to $404 million. We expect non-GAAP income from operations to be in the range of 41 million to 44 million and non-GAAP net income per share to be in the range of 47.
<unk> based.
Based on $83 5 million estimated diluted weighted average shares outstanding.
For the full fiscal year 2024, we expect revenue to be in the range of $1 $5 96 billion to $1 608 billion.
For the full fiscal year 2024, we expect non-GAAP income from operations to be in the range of $189 million to 197 million and non-GAAP net income per share to be in the range of $2 27 to.
222 to $2 35, <unk> based on 83 million estimated diluted weighted average shares outstanding note that the non-GAAP net income per share guidance for the third quarter and full fiscal year 2024 includes a non-GAAP tax provision of approximately 20%.
I'll provide some more context on our guidance first we have modestly raised our Atlas outlook for the rest of the year, primarily to reflect a slightly stronger Q2, and therefore, a higher starting <unk> for the second half we continue.
To expect that Atlas consumption growth will be impacted by the difficult macroeconomic environment throughout fiscal 'twenty four.
Our revised full year revenue guidance continues to assume consumption growth that is on average in line with the consumption growth. We've experienced the slowdown began in Q2 of last year, but with a slight seasonal benefit in Q3 and a slowdown in Q4 as observed over the last two years.
Second we expect to see a significant sequential decline in non Atlas revenues in Q3, as we simply don't expect similar new business activity, especially when it comes to licensing deals for that particular line of business Q2 is just an extreme positive outlier.
Third we are raising our non Atlas revenue estimate for the rest of the year, even though we don't expect our exceptional Q2 performance to repeat in the second half our results in the first half give us incremental confidence in our run anywhere strategy. We continue to expect however that the difficult compare in the back half of the year will impact our non atlas growth rate <unk>.
Finally, thanks to strong performance in Q2, and the increased revenue outlook, we are meaningfully increasing our assumption for operating margins in fiscal 'twenty, 4% to 12% at the midpoint of our guidance and an improvement of more than 700 basis points compared to fiscal 'twenty, three while continuing to invest to pursue our long term opportunity.
As you update your models. Please keep in mind that the majority of our planned fiscal 'twenty for hiring will actually occur in the second half of the year.
To summarize <unk> going to be delivered excellent second quarter results in a difficult environment. We're pleased with our ability to win new business and are demonstrating the operating leverage inherent in our model. While we continue to monitor the macro environment. We remain incredibly excited about the opportunity ahead.
Contemplate to maximize our long term value with that wed like to open it up to questions operator.
Thank you.
Sir if you would like to ask a question. Please press star one on your telephone as well and we ask that you limit yourself to one question and one follow up one moment, while we compile the Q&A roster.
And our first question today will be coming from.
Brahmo.
<unk> Shah of Barclays. Your line is open.
Thank you.
Couldnt you version.
Congrats from me on a great quarter two quick questions first.
The new all of them.
The trends you saw for the numbers you saw for this quarter.
You called out kind of bigger commitments from existing customers and taking more workloads or.
Turning more workloads towards Mongo.
It.
Could you talk a little bit towards that in terms of is that a new trend was it just kind of kind of very special this quarter.
Are you seeing there because thats kind of in this sort of environment seems like against what do you see from everyone else. So maybe a couple of factors to here and then second question is on the newer products like <unk>.
Streaming and Victor databases, how does that feed into the revenue model for Michael.
Thats It for me thank you.
Sure. So right now the transfer of <unk> I think it's just indication of our run anywhere strategy. We've been very committed to that strategy. Since the beginning as you know we started with EBITDA and then introduce Atlas.
But the whole point is that we give customers choice and we want to meet customers, where they are in terms of what deployment model. They want to use and so I think this is just puts and takes of the quarter, where we had a number of customers who wanted to double down on ebay.
And we also had some other non Atlas business come in in the quarter, which showed up in our results, but it's really a confirmation of the fact that we give customers choice and customers really appreciate it appreciate that and that's what you've seen in the results with regards to <unk> I think you said streaming and vector.
Those will show up in the Atlas revenue line as incremental consumption there won't be a separate SKU.
But what it will do is drive as those workloads come on that will drive incremental consumption of Atlas, which will show up in the Atlas revenue line, Yes, I would just add that also as part of the broader developer data platform. It gives us the opportunity to win more workloads in the beginning so you've got both sort of <unk>.
New workload penetration piece, which Dave mentioned, but also sort of the increased outlet numbers is where it will show up on a revenue standpoint.
Great. Thank you congrats.
Thank you thanks, Rob.
Thank you one moment our next question.
And our next question will be coming from Keith Weiss of Morgan Stanley . Your line is open.
Excellent.
Twice on for Sandridge, saying, one question for Dave and one for Michael did you guys talked about.
I think last quarter 15 on your comp AI companies using Mongo DB, you've talked a lot about Europe clickability for AI workloads I think.
A question that a lot of investors have is like the timeframe for when this actually creates real impacts of where it becomes a significant tailwind for us.
Just software in general, but more specifically the question to use when do you think that becomes a significant tailwind for Mongo DB.
We see that more significantly in Atlas revenues and then the question from Michael.
Richard I would talked about the commitments.
Coming down to Alex commitments coming down and that being a drag on operating cash flow any sense, you could give us on how long that drag on ocs persists is there any way to size that.
Net impact over time.
So Keith on on AI, obviously, we're really excited about the opportunity that <unk> presents.
We continue to add many more AI customers this quarter.
In the short term, but we're really excited by some of the use cases, we're seeing we've talked about observed that AI is the management consulting company in more traditional company using <unk> for a very.
<unk> use case and longer term, we believe our developer data platform value prop will just drive more AI adoption people want to use one compelling unified.
Developer experience to address a wide variety of use cases of which <unk> is one of them and and we are definitely hearing from customers to being able to do that on one platform versus bolting on a bunch of point solutions as far more of the preferable approach and so we're excited about the opportunity there and I think you had some questions on the other thing on partners.
I do want to say that we're seeing a lot of work in.
And activity with our partner channel on the AI front as well.
We're working with Google.
The AI startup program and there's a lot of excitement Google have their next conference this week.
We're also working with.
Google too.
Trained Cody there cogeneration tool to help people excited at the development of AI and other applications and we're seeing.
We're seeing a lot of interest in our own AI innovators program, we've had lots of customers apply for that program. So we're super excited about the interest that we're generating.
And on your other question Keith it's been a multiyear journey, where we've been focused on reducing friction and accelerating new workload adoption I do think as we called out we continue to make additional steps and Dave called out some of the specific incremental steps.
This year.
It's part of a transition you know if.
If you look at the Atlas revenue growth Atlas grew 38% year over year, but dollars collected upfront shrank, 15% right and so that gives you a sense for.
The magnitude or the divergence there thats showing up in the op income versus Ocs Bridge I think like most things.
Will be a transition time period, but then it will settle into a more normalized level, but we I think we still got a little bit more transition to go.
As we kind of work through the balance of the year.
Got it thank you guys.
Thank you Kate.
Thank you one moment our next question.
And our next question will be coming from Kash Rangan of.
Golden Sachs.
Your line is open.
Cash Reagan of Goldman Sachs. Your line is open.
I'm, sorry, I didn't hear my name, but thank you very much and congrats David Michael in the quarter, it's hard to.
This kind of operating margin performance being a database company at the scale that you're operating so kudos on that.
The relation of migrate or came off of beta and came into this quarter. So I wonder if that had any particular impact on the EBITDA business, because you've certainly upside your modest expectations.
Get a little bit more detail on how that pipeline of relational migration.
Customers should play out is it going to be showing up in Atlas or is it going to be showing up in enterprise.
The on Prem version and then.
On AI just curious if you can.
Quantify the level of consumption.
In the future to Atlas that you could attribute to.
The different new things that <unk> worked on whether it's AI or streaming.
How should we think about the incremental opportunities for consumption afforded.
By some of the new things you launched at <unk> in New York, a couple months back. Thank you so much and congrats.
Sure. So regarding relational migrators, it's important for investors to know that this is really a high end enterprise play that's where the bulk of the legacy relational market is and relational migrate is designed to help customers reduce the switching cost of migrating off relational databases to market would be for both <unk> and Atlas. So it's a place too.
Depending again on the customers' choice of their deployment model, but it's really meant to reduce the switching costs I would say that there was no real impact in terms of revenue of customers using relation migrate the biggest we just only.
Made it generally available in June .
But there's a tremendous amount of excitement we have a large pipeline of customers who are very interested in.
Are actually starting to use relational migrated and projects have begun but there was no real impact on the quarter regarding your second question about some of the new products and the impact of AI long term what I would say is we definitely believe will have a big impact long term, we think that things like Dr. Search just make it so much easier to build smarter.
Patients.
Margaret Hebei that unified developer experience is a key differentiator this really strong interest in public preview product.
We also see a lot of interest in stream processing stream processing is.
As a use case, that's really optimized for marketing be the data is typically J saw and the variability of the data.
<unk> itself to darken model, that's much more flexible.
It's obviously, a very developer oriented where all the alternatives are using very rigid schemas and a much more complicated to use so that plays into our sweet spot. So we think we have a big opportunity there, but so it's hard to quantify what that impact will be in the long term, but I will tell you that we're really excited and the interest level and the new products is incredibly high.
Fantastic. Thank you.
Thank you Kash.
Thank you one moment for the next question.
And our next question will be coming from Brad Reback of Stifel. Your line is open.
Great. Thanks, very much I'm, not sure David Michael but going back to the commentary on fewer upfront Atlas connects.
Oftentimes when customers sign multi year deals and pay upfront they get a better rate.
So if we were to think about not having them pay you upfront and make long term commences net of net margin benefit to you guys on the pricing side.
Yes, so a couple of things thanks, Brad for the question.
In general.
Even before this sort of evolution and changes in multiyear deals typically they were not all paid upfront typically ours has been annually billed.
But yes to your point.
Think as we've reduced upfront commitment you have a couple of dynamics.
One is when we are not motivating it are providing an incentive to our sales force.
And it wound up being customer driven to leverage in that negotiation shifts.
And on the margin that is helpful for.
The ultimate pricing or discounting and winds up with sort of better pricing for us less discounting to the customer.
Excellent and then on your commentary about second half higher than outpacing first half.
Would it be correct to assume that the hiring environment is a little less.
Competitive so you might actually.
Be able to find people more easily and get better pricing for them as well. Thanks.
Yes, what I would say Brad is that.
Say in general obviously, the frothiness of a few years ago has abated, but force certain skill sets there is still significant premium for talent.
We don't want to lower our bar just to optimize on cost we pride ourselves on recruiting the best of the best in this industry and we focus on paying market rates and so.
While it's a little easier because the market is a little softer I wouldn't suggest that all of a sudden we're getting employees at a massive discount yes, I would think about it as availability.
Then rather than cost and then throw in some of the dynamics some places around different.
Turning to office models and other things I think that's sort of incrementally is likely to provide opportunities in the back half of the year and as they present themselves, we'll certainly pursue those.
Excellent. Thank you.
Thank you.
Thank you one moment to the next question.
Our next question will be coming from Karl Keirstead of UBS. Your line is open okay. Great. Maybe this one to Mike Michael I wouldn't normally ask about the other.
Segment, but it's such an outlier if I could ask a two parter.
First is what surprised on the upside there was the Alibaba deal much larger than you thought or did you grab a few others, maybe you could unpack that and secondly, you did tell us that the second half guidance assumes a significant decline in the non Atlas business is it fair to assume that this other category might.
Returned back to the levels. It was at pre the July quarter. Thank you.
Yes, Thanks Carl.
Other deals not Alibaba Alibaba was baked at the time of the last guidance call. So it was sort of incremental deals that surprises to the upside there.
And yes, obviously, it's a volatile.
Or variables, especially given the 606 and the nature of it where it goes.
Given the Lumpiness of the term license revenue and things like that and so yes, I think that this is not.
<unk>.
Repeatable performance and I think it should settle back down.
Two a more to a lower and more normalized level.
And then if I could ask a follow up Mike you did a good job explaining the changes in the model and the licensing on cash flow.
But it's not a metric you often talk about but your deferred revenue balance was actually down year over year highly unusual is this basically the same explanation that would be impacting Dr. Thank you.
Yeah, I think it's the same explanation or discussion overlaid with our.
Recurring discussion around billings, and that's sort of not a not a metric that we focused on and that we've sort of discouraged people.
From from using in that we're focused sort of on those workloads and winning new workloads, rather large upfront commitments, but one of the ways that plays out is absolutely in deferred and for anyone still doing differ calculated billings calculations that will affect that there as well, yes, okay awesome. Thanks, so much.
Okay.
Thank you one moment for the next question.
And our next question is coming from Rushee Jolly urea.
Of RBC your line is open.
Hi, This is rich calling on for Rishi jewelry today, Thanks for taking my question.
I guess, if we look at the workloads you have in front of you with vector search relational migrate or in streaming and can even throw in application search which virtualized.
More of a driver of let's call it last year, but we had to stack stack rank.
Each of those workloads in terms of your positioning to win and in your your overall opportunity in each of those use cases, how would you go about doing that.
Yes, so rich thanks for your question I would say, obviously, the general operational workload of a field called the <unk> workload is still our bread and butter workloads that people come to us in relational migrate or would just be more of that because we're they're migrating operational workloads off relational databases to mongo DB.
And then the other use cases, it really fund other products is really a function of the use cases of customers customers are really interested in for example.
Atlas device sync, which is really focused on the enterprise mobility play for example of point of sale.
<unk> devices for the retail industry and automotive connected car and manufacturing instrumented the factory floor. So it really depends on the use cases.
In application search, we're really seeing an acceleration of large workloads and that in there for that product. So we're really excited about the size of some of the business that we're seeing there.
The vector is still in public preview so.
We hope to have it sometime next year, but we're really excited about the.
The early and high interest from enterprises, and obviously some customers already deploying it in production, even though the public preview product.
Streaming is something that we're super excited about this is more for event driven.
Real time applications, that's just very suitable for Margaret <unk> due to the <unk>.
Most of the data is and Jason and the flexibly the Doctor model makes it a very compelling play.
And so so I would say that it really depends on the customer's use case, what it really does is just enables us to go after more workloads more quickly and it really positions us as a truly strategic.
Supplier to large large.
Enterprises, and obviously a critical supplier for early stage companies and Thats. Our strategy is to get customers to use <unk> to be for a variety of use cases across a variety of deployment models. Yes. The other thing that I would add which is probably implicit in it comes across that but I think it's important enough to make explicit is one thing that that sort of Richard your question sort of the slice by.
Fleiss view misses is the aggregate benefit of delivering the whole platform right and delivering a common.
Integrated unified experience to developers so they don't have to use a bunch of point solutions.
And I think that's really a key part of the strategy.
Got it that makes perfect sense. Thank you.
Okay.
Thank you one moment for the next question.
Our next question will be coming from baseline of Piper Sandler Your line is open.
Yeah.
Good afternoon. This is Brent I forgot what's next there Dave I wanted to talk a little bit about.
And Mongo has been at the leading edge of powering new apps for the better part of the decade.
We're all trying to figure out what the Ci first world looks like given your per view.
As a new App enabler.
What's your sense in the next three to four years, how many of these new apps are going to layer in largely with models.
And what is the net result on the database.
Yes, so Brian Thanks for your question I firmly believe that we as an industry tend to.
Over estimate the impact of a new technology in the short term and underestimate the impact in the long term. So as you may know, there's a lot of hype in the in the market right now in the industry right around AI and this in some of the early stage companies. In this space have are the valuations are through the roof in some cases, almost it's hard to.
See how people can make money because.
The risk reward doesn't seem to be sized appropriately.
So theres a lot of hype in this space, but I do think that AI will be a big impact for the industry and for US long term I believe that almost every application.
With new and existing will have some AI functionality embedded into the application over the next in your horizon three to five years and let me just remind people why we see wherever we see impacting our business one developers will become far more productive with the use of cogeneration of Codexis tools, what that will mean is.
That will lead to more applications, which means they need more databases and more data platforms.
<unk>.
Developers will use.
Things like generative AI to just build smarter and more intelligent applications. One they don't want to use point solutions, because it's clear developers want one platform to process and analyze data and meta data and <unk> data and <unk> is that platform. So that is why we are seeing so much interest and vector search I believe is really ultimately a feature.
Not a product and essentially it's basically enabling people to marry private data with public data to really offer a compelling experience and there's so much interest in our public preview right now and as we as I mentioned earlier, we've continued to add many more AI customers. This quarter and we think that the impact will be big.
But in the short term these are still smaller workloads, but theyre going to grow over time. Some of the use cases are really interesting but.
But the fact is that we're really well positioned because what what what <unk> does is really instantiate AI in front of it and software, which means developers play a bigger role rather than data scientists and that's where you'll really see the business impact and I think that impact will be large over the next three to five years.
Super helpful color, there and a quick follow up.
Like three year annual growth rate for <unk> is over 20% it slipped below 10% in Q1 Spike now above 30% here in Q2, excluding the licensing multiyear deals.
If you continue to see enterprise workload migrations.
Happen, what why can't you continue to see strength in EMEA.
Yes, so a couple of things I think as Dave mentioned some of the relational migrations.
The destination of those whether it's enterprise advanced or Atlas will depend on the.
Customers cloud strategy in their overall approach from a strategy standpoint, certainly some of that could benefit.
And we've continued to see.
<unk> adoption and adoption of new workloads within that customer base.
I think the key thing at least thinking about the back half of this year.
And as you start thinking about next year. It's just we have had very strong results from EDA and so we think about EBITDA on a comparable basis.
It's really important to keep in mind.
Okay. Thank you.
Thank you one moment to the next question.
And our next question will be coming from.
Jason Adler.
Of William Blair. Your line is open.
Yes. Thank you. Good afternoon, just wanted to get a sense on EMEA, you talked about doing a good job of existing customers, adding incremental workloads.
What's the main driver there or is there something you're doing differently.
Do you think it's just maturity and customers getting more comfortable with you for more workloads.
Yes, I think it's really a function of people really recognizing that mongo DB is truly a standard it's a platform they can bet on to run the.
The most mission critical use cases, and then and the flexibility of the deployment models means that they can start on prem, but they can always migrate to the cloud and so that optionality that built in Optionality also makes going to EBITDA that much of a comforting because it's not like there'll be locked into an <unk>.
On Prem solution or locked into some proprietary cloud solutions. So that that's why I believe just given our maturity given how we're really becoming a standard in so many organizations people are much more comfortable doubling.
Doubling down on the year.
Got you and then just to follow up on that question.
It seems like I mean, I don't want to put words in your mouth, but it seems like maybe you've been a little bit surprised at the strength of VA.
Relative to Atlas over last year, I mean Atlas has been really strong too, but EMEA is getting.
I think surprise you in March of the upside.
What does that say I guess about kind of on prem versus cloud or our self managed versus fully imagine any comments on that Dave yes, what I would say is it really its reinforcement that customers still will run workloads on prem that theres still run workloads that they want to match themselves versus.
Use of managed service like Atlas and so.
And I think customers value choice that customers value the ability to have different deployment models, but also value. The fact that if they want to migrate from one deployment model to another.
<unk> to do so using mom with UBS. So I think what we're really seeing is customers value choice and the run anywhere strategy really resonating with customers and I would just add Jason that the premise of your question is correct. We have been very surprised obviously pleasantly so.
With the performance of EMEA, it's been it's been terrific to say, but it's definitely been surprising to the upside.
Great. Thank you.
Thank you one moment for the next question. Please.
And the next question will be coming from Tyler Radke of Citi. Your line is open.
Yes, thanks for taking the question.
So Atlas revenue grew by almost $30 million quarter over quarter, which is the highest you've ever seen it certainly.
That performance is better than any of the other consumption models, you are seeing and it seems like the commentary at least on Atlas.
Consumption was pretty consistent with your expectations and still a bit below.
Where it had been pre some of the macro challenges. So could you just kind of unpack, what's driving that strength and revision back to at a record high level. The sequential dollar adds is it is it better pricing just given some of the sales.
As you've made or perhaps maybe it's the.
The new AI use cases that you talked about if you could just help us understand that a bit better. Thank you.
Thanks for the question Tyler a few things if youre looking at on an absolute dollars basis, obviously the business is much larger.
So let's start with that secondly, if we're looking at the sequential from Q1 to Q2 remember Q1 has fewer days.
And so that's obviously part of the dynamic and Youll see that historically as well.
And then third we had talked about.
The Q1 consumption being better than planned and therefore, the starting <unk> in Q2.
Being better.
We saw the consumption itself kind of once we had that.
Once you kind of adjust for that higher starting base broadly in line with our expectations so slightly better.
But.
Not not big upside there and when we look at it in the back half of the year. That's what we're continuing to assume is that same trend line, obviously seasonally adjusted based on those emerging seasonal patterns.
That's really how that kind of tie in square all the numbers.
Okay. That's helpful.
And then a follow up question just in terms of the.
The excitement obviously out in the industry around generative AI, but I guess I'm curious specifically.
Internally youre using generative AI.
In products like relational migrate or to automate a lot of the the.
Re architecture process, and secondly are you seeing a greater appetite from customers to modernize and our legacy.
Transactional applications.
And is that is that starting to pick up just just given the excitement around journey. Thank you.
Yes, so with regards to Gen AI I mean, we do see opportunities.
Essentially the reason.
No when you migrate off using related to migrate or there's really three things you have to focus on one is mapping the schema from the old relational database to the market EV platform.
<unk> the data appropriately and then also rewriting some if not all of the application code historically that last component has been the most manually intensive part of the migration, obviously with the advance of cogeneration tools this opportunities to automate a lot of the rewriting of the <unk>.
Application code I think we're still in the very early days Youll see us continue to add new functionality to relational migrated to help again reduce the switching costs of doing so and that's obviously an area that we're going to focus so that's.
In some ways.
A big opportunity for us and Colorado as the second part of your question, which I.
Yes, yes. It was just around the customer appetite like is that the frenzy around Gen AI is that causing.
The acceleration in the pace in which customers want to take on the modernization projects, yes. So I would say that the recent market <unk> is well suited for these new.
Our monetization projects is one the obviously the data that's trapped in these legacy platforms is in credit.
Important if you want to leverage that proprietary data for a competitive advantage to us that the performance requirements of these new modern applications require new modern platform and three because it's such a iterative.
Area, where people are is changing so quickly you all seen the platform that's inherently flexible so that's driving people to move to market Hebei.
Two more modern platforms more quickly so unlike the old lift and shift where people are just trying to say avoid paying the oracle tax now people are being much more thoughtful about.
Not just lifting and shifting but modernizing and going off relational too long.
Among the <unk> and Thats definitely a trend that is increasing.
Thank you.
Thanks Tyler.
Okay. Thank you one moment for our next question.
And our next question will be coming from Patrick Wall Ravens.
Of JMP Securities. Your line is open.
Hi, This is Ellen on for Pat Thanks for taking my question and congrats on the strong quarter. Just a quick one from me what will the pricing structure for some of the new features like Dr. <unk> search and stream processing.
So the pricing will be a function of the obviously the consumption of the backend infrastructure that supports those new capabilities. So they'll show up as essentially more consumption of Atlas clusters are increases clusters, depending on the load of the application that will show up in.
The Atlas revenue line.
Alright, thank you.
Okay.
Thank you one moment for the next question.
And our next question will be coming from Michael.
<unk> of Keybanc Your line is open.
Hello.
Hi, There Hey, Michael.
Okay. My name Thats, while there wasn't sure. It was maybe a quick one for you Mike and then one for Dave very quick Mike will comment on the linearity in the quarter relative to those consumption growth trends and how we exited and then Dave for you.
You just said that you think that vector search as a feature not a product.
There are no.
Two databases deliberately out there explicitly either in the market and then you as well as others who.
Who don't have vector databases, including Google with alloy the other day talking about the applicability of their databases.
For Vectra embedding. So can you talk about how that's playing out as far as you can tell with customers in terms of their receptivity I'm looking for something besides a dedicated vector database for this so preliminary question in on that one.
Sure, Yes, just quickly on linearity I think there is anything particular to point out of note there.
So regarding vector search.
And I've shared this.
With other talked about this previously.
Vector search is really a reverse index. So it's like an index is built into all databases I believe over time.
<unk> search functionality will be built into all databases, our data platforms in the future. Yes. There is some point products that are just focused solely on vector search, but essentially it's a point product that's still needs to be used with other technologies like Mongo DB to store the metadata the data to be able to process and analyze all that information.
So developers have spoken loudly that.
Having a unified and elegant develop experience is a key differentiator it removes friction and how they work it's much easier to build and innovate on one platform versus learning and supporting multiple technologies and so.
My strong belief is that ultimately vectra search will be embedded in many platforms and our differentiation will be again like it always has been a very compelling and elegant developer experience.
Thanks, Dan.
Yeah.
Thank you.
And one moment to the next question.
Okay.
Our next question will be coming from Mike Tyco's of Needham Your line is open.
Hello.
Mike.
Of Needham Your line is open.
Oh, I'm, sorry, I apologize the operator to know when they mentioned.
Thanks for getting me on the call here guys.
If I could just follow up on on Dave Your comments there.
In response to Michael on the vectors surge I know that we're talking about the developers and how they.
They are voting here because they want the data and a unified platform unified database that preserves all that metadata right.
I would think there's probably also a benefit to having it all in a single platform as well.
Because you're lowering the tcl for your customers as well right. They are not paying a tax for the movement or duplication of all that data between different vendors is that also a fair assumption when I'm thinking about the potential that you guys bring versus maybe some of those more.
<unk> features are databases out there.
Well with Vectra as vectors are really a mathematical representation of different types of data. So there is not a ton of data. Unlike application search weather is profound benefits by storing everything on one platform versus having.
On the operational database in a search based database and some glued to keep the data and sink that's not as much the case with vector because youre talking about storing essentially.
No.
Elegant index.
So it's more about the user experience and to develop and workflow that really matters and what we believe is that offering the same taxonomy in the same way. They know how to use <unk> to also be able to enable vectra search functionality is a much more compelling differentiation then developer him to bolt on a separate vector.
Vector solution and have to provision configure and manage that solution along with all the other.
Things that have to do.
Got it thank you for helping US clear my understanding on that and then just a quick follow up for Michael.
Michael I've gotten a couple of inbounds, just trying to unpack. The Q3 revenue guide here, specifically as it pertains to Atlas and I think what people are looking at is I think.
At least embedded slower sequential growth on a daily consumption basis.
The questions I'm getting or was there anything one time Q2, <unk> that would cause us to think that the daily average.
<unk> growth would decelerate going into <unk>.
Anything else you can tease out there while we have you.
No I think if you look at what we've said is the real.
Underlying reason for the increase obviously, we don't guide by product, but we are trying to give you a whole bunch of color around it the real increase.
In the Atlas number is given the slight outperformance in Q2, we have a starter hiring <unk>.
In Q2, and Thats at the beginning of Q3, and that's really what's flowing through the numbers in the guidance.
Terrific. Thank you very much guys I appreciate it.
Thank you Mike Thanks, Mike.
Thank you. This concludes the Q&A session for today, and I would now like to call. It.
I'll turn the call back over to Dave <unk> CEO for closing remarks. Please go ahead.
Thank you everyone for joining us today I just want to.
Our reinforced that we had another strong quarter, new business performance, which really validates our value proposition and our run anywhere strategy.
Again, we remain focused on our north star, which is acquiring new workloads, both from new workloads, and new customers and existing customers and innovating both on the product and go to market dimensions to accelerate workload acquisition and while it's early days, we believe that with the rise of AI among the view will be.
A beneficiary of SaaS it becomes more prominent thank you very much and I appreciate all your time take care.
This concludes today's conference call. Thank you all for participating and enjoy the rest of your evening you may now disconnect.
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