Q3 2024 Couchbase Inc Earnings Call
[music].
Greetings and welcome to the Couch based third quarter fiscal 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
A brief 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.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Edward Parker head of Investor Relations. Thank.
Thank you Mr. Parker you may begin.
Good afternoon, and welcome to cash basis third quarter 2024 earnings call, we will be discussing the results announced in our press release issued after the market closed today.
With me are couch basis chair, President 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 product capabilities are expected future business and financial performance and financial condition and our guidance for future periods. These statements reflect our views as of today.
<unk> only and should not be relied upon as representing our views at any subsequent date and we do not take 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 the risks discussed in today's press release and our most recent annual report on Form 10-K or quarterly report on Form 10-Q filed with the SEC.
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. 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 third quarter results as well as our fourth quarter and full year fiscal 'twenty 'twenty four guidance I'll start off with a few highlights of our Q3 financial results.
I'm pleased to report that we had a very strong quarter once again outperforming our guidance across all key metrics.
Highlights include growing capella consumption.
Continued big deal activity healthy new business and expansions strong new customer logos and overall excellent operational performance from all teams across the company.
We continue to execute across our key priorities.
Deliver topline growth increase the mix of Capella drive sales and marketing efficiency and accelerate the pace of leverage in our model.
I believe our results this quarter demonstrate our increasing momentum across all of these fronts.
Total annual recurring revenue or <unk> was $188 7 million up 24% year over year up 23% in constant currency and up 4% sequentially.
Revenue in Q3 was $45 8 million up 19% year over year and up 6% sequentially.
Our non-GAAP gross margin remains best in class at 89.5% non.
non-GAAP operating loss was 5 million and non-GAAP operating margin was 11 percentage points above the midpoint of our implied guidance range.
This demonstrates our focus on increasing efficiency across our business and continued operating expense discipline.
I'd like to call out our momentum with Capella, which continues to experience strong growth and is contributing more materially to our top line as well as net retention.
In fact more than a fifth of our customer base are now capella customers.
Capella continues to be an especially important engine for new logo acquisition, which contributed meaningfully to the 24 net new customers. We added across the board in Q3 doubling quarter over quarter and more than we added in the first and second quarters of the year combined.
As our compelling base continues to grow we're seeing favorable consumption dynamics emerge as both existing and new customers realize our platforms unique performance and scale.
Robust set of integrated services, along with ease of use and rapid time to value.
In Q3, we saw multiple instances of customers consuming ahead of their initial contracts and electing to buy more driving strong capella consumption and contributing to our <unk> and revenue outperformance.
While we're still in the early innings of our journey, it's gratifying to see the investments we made in our cloud database bearing fruit as we expected they would.
I am confident as ever in our ability to sustain durable long term growth.
Turning to innovation, we continue to invest in enhancements and capacities that further extend the value of couch space as a cloud database platform for modern applications.
Recall that last quarter, we talked about our four part vision for AI.
Drive developer productivity optimize AI processing enabled AI powered apps anywhere and do it all with a vibrant partner ecosystem.
From inception, our architecture has been built to enable the most demanding applications to not only perform but provide rich hyper personalized context aware experiences for our end users.
We refer to these as real time adaptive applications.
Combining operational and analytical capabilities, our multimodal platform seamlessly integrates advanced services like indexing eventing full text search and more in a single solution.
Our platform is perfectly suited for the massive performance and scalability requirements that adaptive applications require.
At AWS re invent last week, we announced a new Capella column, there service on AWS, which significantly enhances the ability to harness real time analytics to build adaptive applications.
At the heart of this new service is the introduction of our call them their store and data integration capability directly into capella.
Which further converge is operational and real time analytic workloads into a single platform.
Capella column there will also feature built in natural language processing with Capella IQ the developer co pilot, we announced last quarter.
Capella column, there is a significant technical achievement that we believe brings substantial business value to our customers.
The gap between analytic and operational processing is a longstanding barrier to making it easier for development teams to include the required real time analytics into their adaptive applications.
As a result, our customers can ingest data from anywhere in the capella and real time, reducing complexity and costs, all while increasing developer productivity.
Importantly, this new capability is a perfect example of how we leverage our unique architecture to further capture new workloads in this case real time adaptive applications and our singular cloud to edge platform.
Now I'd like to turn to customer wins.
In Q3, we saw new capella wins across many industries, including high Tech government business services and financial services.
One new capella customer from the quarter was an AI powered customer intelligence platform provider.
Top priority for this customer was eliminating maintenance costs and saving time with the managed service as its customer engagement application growth.
Initially beginning on our community edition this customer migrated to Capella this quarter because it delivered on all of the application requirements with the most compelling price performance.
We also continue to see customers expanding with capella.
Youll Star games is one of the top publishers developers and investors of games in Asia Pacific.
This customer initially selected capella to deploy manage and streamline its game database services.
It has continued to invest in our database as a service because of Capella is impressive price performance stability and superior database performance to support rapid customer growth as its game continues to scale.
Another capella expansion from the quarter came from a leading global design and hospitality company.
This customer Leverages couch base to manage organize and analyze data for order management fulfillment and pricing for the thousands of products in its catalog.
This customer originally selected capella to reduce the maintenance and operational costs associated with the self managed database and made the strategic decision to expand its investment in capella this quarter for additional operational benefits.
Switching to a new enterprise wins, we landed a Canadian subsidiary of an American multinational financial Services Corporation.
This customer selected couch space to power, a real time trading analytics application to analyze market trends, enabling traders to make more informed decisions.
This customer selected couch base for its superior database performance and high availability.
Another new enterprise customer this quarter was a communications services provider that offers a low cost high quality mobile service for its customers.
This customer needed a high availability database platform to support the mobile billing system for its more than 5 million mobile carrier service subscribers.
This customer selected couch base, because the database is impressive scalability and suitability for cloud orchestration, while maintaining superior performance.
Now let me provide a few thoughts on the near term demand environment as.
As we've discussed all year, the macro uncertainty continues to present headwinds for it spending and we continue to see elongated deal cycles extra layers of scrutiny and approval and customers electing to buy in smaller increments. These trends again persisted throughout the quarter.
That said I'm very pleased with our execution against these headwinds we continue to not only see a healthy pipeline of opportunities for our cloud database platform, but also strengthening consumption trends as we start to achieve scale with capella.
And despite the challenging macro environment organizations continue to invest in long term digital transformation initiatives, where we're increasingly playing a strategic role in enabling these journeys.
While we would prefer a stronger demand backdrop, we're seeing a growing desire for lower tcl and faster time to value both of which play to our strengths and are creating additional opportunities for us as a company.
You've often heard me say the couch based has been built for this moment and I think that's as true today as it has ever been.
In closing, we're making progress on our initiatives are committed to focusing on the areas. We can control and are nimble in navigating the ones we cannot.
We remain dedicated to delivering against our key priorities for fiscal 2020 for.
Focus on topline growth increase the mix of Capella drive further sales and marketing efficiency and accelerate the pace of leverage in our model.
Before handing the call over to Greg I wanted to invite investors and analysts on this call to join me and the rest of the couch based executive team at our first analyst Day in New York City next Wednesday December 13th.
We're excited to dive deeper into the foundation of our company technology and strategy share details on Capella and how we're re imagining the database experience.
And demonstrate how we're delivering on our commitment to drive efficiency across our business and financial model.
Finally, as I always do I want to emphasize.
One of our core values that I've repeated many times before at.
A couch base, 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. Despite the elevated level of deal scrutiny that Matt mentioned, we are pleased with our execution, our dedication to delivering value to our customers and our ability to navigate the environment, while driving very strong outperformance in our operating loss.
Yeah.
I'll now walk you through our third quarter in more detail before providing our guidance for the fourth quarter and full year.
Total annual recurring revenue or <unk> was $188 $7 million at the end of the third quarter, representing 24% growth year over year or 23% growth year over year on a constant currency basis, and 4% sequentially without the incremental currency headwind experienced in Q3, our MLR would have been approximately.
$1 $4 million higher or $3 6 million above the midpoint of our guidance range.
Revenue for the third quarter was $45 $8 million, an increase of 19% year over year, and 6% sequentially revenue growth benefited from stronger than expected consumption of capella and strength in our enterprise business, partially offset by declines in professional services.
Subscription revenue for the third quarter with $44 million, an increase of 23% year over year and 7% sequentially.
Professional services revenue for the third quarter with $1 $8 million, a decline of 36% year over year and 17% sequentially.
And with our expectations following outsized strength in professional services in fiscal 2023.
We continue to expect contribution as a percentage of revenue in fiscal 2024 to be below historical levels.
Our <unk> per customer performance in the third quarter was $264000 up from $261000 in the second quarter up 14% year over year and indicative of the growing wallet share we have with large customers. As a reminder, as capella continues to grow and revenue contribution we expect <unk> per customer growth could moderate.
The decline in future quarters.
Our dollar based net retention rate or NR continues to exceed 115% driven by strong renewal and upsell activity across our base of larger enterprise customers are <unk> has been steadily improving thanks to capella.
We exited the quarter with 715 customers an increase of 24 net new customers in the second quarter as Matt mentioned Capello. Once again represented the majority of the new logos in the quarter and we grew our capella customer logo count by over 25% from the second quarter up from over 20% from Q1 to Q2.
We're encouraged by the strength of our new logo pipeline and remain confident in our ability to reliably expand logos as evidenced by our consistent <unk> growth and our strong retention metrics against the more challenging spending environment.
In discussing the remainder of the income statement. Please note that unless otherwise stated all references to our expenses results of operations and share count are on a non-GAAP basis.
In Q3, our gross margin remained strong at 89, 5% benefiting from sustained enterprise gross profit margin strength and the completion of the amortization from some of our initial capella investment offset by growing Capella mix. This compares to a gross margin of 88% a year ago, and 87, 2% last quarter as a rig.
Minder 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. We are pleased with our execution on this front as our expense discipline and early benefits from our cost savings initiatives resulted in us again outperforming our operating loss outlook.
Our sales and marketing expenses for Q3 were $27 $1 million or 59% of revenue compared to $24 $9 million or 65% of revenue a year ago.
Research and development expenses for Q3 were $12 $6 million or 27% of revenue compared to $12 million or 31% of revenue a year ago. We continue to thoughtfully invest in our as a service offering as well as additional features to bolster our platform.
General and administrative expenses for Q3 was $6 4 million or 14% of total revenue compared to $6 6 million or 17% of revenue a year ago.
non-GAAP operating loss for Q3 was $5 million for negative, 11% operating margin 11 percentage points higher than the midpoint of our guidance compared to an operating loss of $9 6 million or negative <unk>, 25% operating margin a year ago.
non-GAAP net loss attributable to common stockholders for Q3 was $3 $7 million from negative <unk> <unk> per share.
I'll now turn to the balance sheet and cash flow statement. We ended Q3 with $156 $6 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 RP O totaled $164 $4 million at the end of Q3, an increase of 3% year over year, we expect to recognize approximately 68% $111 8 million of total <unk> as revenue over the next 12 months, which represents 7% year over year growth.
Operating cash flow for Q3 was negative $12 $7 million and free cash flow was negative $13 8 million or negative 30% free cash flow margin. We are pleased with the progress we have made in our free cash flow profile and remain committed to driving further improvements now.
Now I will provide guidance for Q4 and the full year fiscal 2024.
As Matt discussed we continue to see solid momentum in our pipeline remains strong. Furthermore, we anticipate that our investments in our product capabilities partner ecosystem and go to market motion will continue to complement our momentum.
That said, we remain mindful of the macro headwinds and continue to carefully monitor their impact on our business as.
As such our outlook maintains a consistent degree of conservatism across all of these metrics to account for the uncertainty as well as lack of visibility into how the macro may impact consumption trends for emerging as a service offering.
For the fourth quarter of fiscal 2024, we expect total revenue in the range of $46 2 million to $46 $8 million or year over year growth of 12% at the midpoint.
We are raising fourth quarter <unk> guidance last provided on our Q2 call and now anticipate <unk> in the range of $198 million to $202 million, which represents 22% growth year over year at the midpoint.
This compares to our prior outlook of $195 5 million to $199 $5 million or 21% growth at the midpoint.
We note that due to foreign currency fluctuations our guidance incorporates some incremental 1% year over year growth headwind since our Q2 call. We expect a non-GAAP operating loss in the range of negative $8 2 million to negative $7 $4 million.
Now turning to our revised full year guidance, we are raising our full year revenue guidance and now expect full year total revenue in the range of $176 2 million to $176 $8 million or year over year growth of 14% at the midpoint as.
As a reminder, we continue to anticipate contribution from services revenue in fiscal 2024 to be below recent levels due to customers electing fewer services as a result of macro related budgetary pressures as well as the naturally lower services attach rate with capella.
Furthermore, you've historically seen variability with respect to the implementation timing of certain enterprise deal, which impacts our revenue visibility along with new or migrated capella customers.
Therefore continue to view <unk> as a better indicator than revenue of the strength of our business.
And finally, we are decreasing our operating loss outlook and now expect a non-GAAP operating loss in the range of negative $35 4 million to negative $34 $6 million with that Matt and I are happy to take your questions operator.
Thank you.
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One moment, please while we poll for questions.
Thank you. Our first question comes from the line of Rob Oliver with Baird. Please proceed with your question.
Great. Good afternoon can you guys hear me, okay, sorry for spotty connection.
Unclear, Rob Hey, Rob, Okay, Great, Hey, Matt Hey, Greg, Matt I had a couple for you on Capella and then Greg I had one for you.
So.
So Matt just first on on Capella.
When customers that are current couch based customers are.
Considering a database as a service.
Is that does that go to competitive bid and it sounds like you guys are getting nice momentum winning those but maybe talk about how that process happens and what you've seen in terms of kind of win rates.
Those customers that know you.
And then you mentioned usage patterns.
As a nicely and I'd just be curious to get some context, there like better than your expectations is it more in line with like how we would expect the adoption curves are there new use cases, you're seeing that have surprised you. So a couple of things there and then I had a follow up for Greg.
Sure.
So let me take these one at a time I think Rob as it pertains to existing customers.
Oftentimes they have chosen couch base because of our platform capabilities.
What we're able to do with Capella is offer them additional value proposition P. C O faster time to value easier to expand use cases that is incremental to the value proposition we have already delivered.
Very rarely if ever does that is that going to a competitive bid. It's more finding the right time for them to migrate their entire estate a subset of their state or focus on new workloads moving into capella because of that value proposition. The competitive dynamic that we're seeing is actually workloads that we do.
Don't support where because capella has traction people are reevaluating decisions. They previously made on other database as a service vendors and saying well couch space now that you are mature with Capella, we're going to we're going to open up.
Decisions on workloads that you don't have which is one of the dynamics, that's leading to a healthy expansion.
And so the the migration path is one that's very good for us at the same time, we're careful to not arbitrarily try to push customers beyond what they want to do and maintain balances as we manage those those relationships.
When it comes to usage, we are in fact seeing very healthy usage across the board both in.
Our ability to land new customers with shorter sales cycles, the rate at which they.
Expand both with those workloads and new use cases.
Not really about.
Additional types of use cases, just more.
That time to value our relevance with the developer persona.
That drives to that consumption activity that again is really healthy and we're going to spend a lot of time talking about what we're seeing there and Rob if I could just add that's part of what drove some of the outperformance on the top line this quarter, particularly on revenue is.
That consumption dynamic Matt talked about.
Great. Okay. Yes, that's helpful color really appreciate that Pat and Greg and then Greg just one follow up for you just you've been very clear about the natural headwinds of gross margin that comes from Capella, obviously sort of a good problem to have here is capella is.
Ramping nicely.
As we look out and think about our model in FY 'twenty five other levers to offset that not getting it they're trying to get you to do a number here, but as we think about that gross margin.
Are there are there levers or things, we should be thinking about that could be offsetting factors to that thanks a lot.
Yes, I think just the at the total level the more capello, we have it'll be diluted from a rate perspective that said.
As we get more mature and more scale of capella the margin rate will improve because there is some level of effectively fixed cost in there and then the other dynamic you see why we had really strong margin performance. This quarter is we.
We did have some internally developed software for capella going back several years as we launch that.
That development, that's now off the books and have done. So that's why you see a little bit more.
Gross margin this quarter, but it will dilute over time, we just got to keep getting more volume and it'll it'll improve the capella rate we're seeing today.
Great Super helpful. Thanks, guys I appreciate it.
Thanks, Rob.
Thank you. Our next question comes from the line of Sanjay Singh with Morgan Stanley. Please proceed with your question.
Yes. Thank you for taking the question and really nice to see these results again this quarter, our particularly our eyesight.
I guess my other question I had on Capella is.
Terms of the workloads that you guys are.
Starting to onboard onto Qatar or can you give a sense of the nature of those types of workloads that are and how you know is copper.
Addressing workloads that you may not have gotten before.
With Capello enterprise.
So sanjiv.
First of all though the pace of new logo acquisition is certainly going up and capella is delivering on the value proposition that we expected it would.
Which is lower barrier to entry into the couch based platform.
I know you know the the level of capabilities, we have in our platform allows us to serve many many different use cases everything from.
Customer 360 to field inventory management across the board.
Very wide variety.
Verticals and use cases.
The dynamic that we're seeing with capella is less about different types of use cases, because quite frankly, the breadth that we.
<unk> today is quite extensive it's more of the pace of acquiring.
In some cases geographies, where we may not have as much of a direct presence built out we're benefiting from cloud partnerships and customer signing up.
We're able to.
Again, shorten shorten sales cycles, but then benefit from from faster expansion I think the.
<unk> ability to go directly to developers and move from trial to initial customer.
We've been talking about and we're seeing that and that's not just net new customers, but that's also new applications in existing accounts, where we may be able to.
Migrate into a line of business or a particular part of multinationals.
We werent able to get to to be handle it. So overall really healthy again, we've had very high expectations for capello across all of these all these variables and we're really starting to see that come to fruition.
That's really encouraging I'm sure we're going to hear more about that next week in New York at the Investor Day, but just as a follow up actually go into Q4, and obviously Q4 is a is a big quarter for for everyone in software and I'm sure. That's the case with cash base as well.
Going into Q4, Greg is there any way you can give us a sense of the size of the renewal base this year versus last year and how how do you feel the sales team is in terms of being on top of those renewals given that you know the macro is still a little challenging out there.
Yeah, Hey, Sanjay. Good question, Yes, Q4 is a big one for us it'll obviously be should be our biggest quarter ever.
And the renewal pool is very healthy.
It's it's slightly larger than last year, and I would just add that.
You probably saw we had a little bit wider guidance range at times. There is several of our largest customers have renewals coming up between Q4, and Q1 and depending on the timing of when they get done obviously, the Q4 hundred ones will happen now the Q1s could happen in Q4, they could happen in Q1, depending on timing, but those those will drive.
A significant amount of what that actually looks like so it's a big quarter Theres a couple of really big deals out there that.
They are going to be really exciting to do and that's what's going to drive drive Q4. So we're looking forward to it and as we said we're looking forward to sharing more next week and Sanjiv, if I could just sort of how long we.
We talked about the excellent operational performance in the quarter, that's not just.
The efficiency and leverage that we demonstrated with the financial results, but it gets at some of the very things that you're asking about.
Have I been more confident in the functions across the company inclusive of our go to market teams.
Understanding where we are with deals understanding how to position with the right economic value.
Managing pipeline, just driving driving linearity across the big Horn so.
They are a big deal dynamics at the big quarter, but.
Testament to the teams for the operational rigor they have in place and.
I think they are doing a great job and we'll continue to deliver.
Great I appreciate the thoughts thanks.
Yeah.
Thank you. Our next question comes from the line of attack kicked around with Oppenheimer. Please proceed with your question.
And a nice a nice work guys great quarter.
Couple from me Greg.
Can you remind us on <unk>, while he's got not a good indicator for your business I mean, it's been flattish for three quarters in a row.
Cappella cannot have too much of an impact on it given that it's a low single digit percent of your revenue is still so help us understand remind us again the disconnect between <unk> and revenue.
Yes, it's a good question thanks few tie.
Look on the <unk> I would just tell you and it goes back to the comments I just made on <unk>, we have several of our largest customers coming up for renewal typically they do multiyear renewals. So if you think about at the renewal point, if it's a multiyear deal youre, putting all of that into our Po and by the time you get to the end of that Theres.
There's not much left and so I think you'll see.
An improvement in our Apio coming out of Q4 because of some of those particularly larger deals which is why youre seeing some variability in the timing, whereas obviously the revenue stays.
Grow with it stayed relatively consistent over time, so the revenue that full value of revenues running but there's some of these deals that are renewing in Q4, there's only one quarter left of <unk> in the in the backlog if you will.
Are these multiyear deals Greg.
Yes, yes.
Yes. These large deals are typically multi year deals at least two if not three year deals.
And then on.
<unk> on gross margin I understand the comments there, but maybe can you specifically comment on capella, specifically, meaning is the gross margin of capella still below 50% or has it already improved above that level.
Yes.
We haven't obviously talked about that and spoken about the gross margin I can just tell you that it has steadily been improving and we saw very healthy uptick this quarter in particular, and it's doing exactly what we thought in terms of the growth of the business and the margin rate and so it is improving and like I said, we've got that one.
Time comparison adjustments. So we feel good about where the margin rate is on Capella and works can ultimately land and as I was mentioning the more volume we get there. It will only continue to improve okay very good and then last one for you Matt.
On Capella itself.
In what way are customers that are adopting it, especially the new ones that are joining the platform different.
Their profile and their use cases compared to customers.
Youre, bringing on with your on premise platform.
Yeah.
Yeah again, I think it's less about the use case of more about the pace of adoption we talked about.
One of the new logos.
In the prepared remarks, we had another company that you know well multinational cyber security company.
Chose us for price performance on an app that certifies all of the connectors to their platform and doing security health checks on behalf of their customers. That's aligned with an application that we would have service before but not until we have capella did we break through with that price performance and uses.
<unk>.
Time to value, we had another new logo sworn engineering AI ml base supply chain optimization platform.
And they chose us because it literally freed up developer time and resources with the managed service against other solutions that they were evaluating now if we were to go through the specific use cases in these verticals we have.
<unk> and its not like we couldnt get out that with couch space, but it's the incremental value proposition and ease of use and all the things that we've.
Built into Capella that are getting those deals over the line and if I were to take you through migrations and new applications inside customer, it's more of that value proposition coming to fruition. We have a very broad based platform and we continue to add to it with additional services customers have always valued that.
Now marrying up the consumption the way they want to consume the technology with all of those capabilities, which we believe are differentiated and industry, leading in our single cloud to edge platform. So it's that combination.
Providing the uplift not necessarily an ability to get at new use cases, because we've worked so hard to have those capabilities in place appreciate it. Thank you so much good luck.
Thank you Pat.
Thank you. Our next question comes from the line of Matt Hedberg with RBC capital markets. Please proceed with your question.
Great. Thanks, guys Congrats from me as well.
Matt.
Accelerating net adds were great to see.
I think you gave some statistics on versus first half or even Q2 was there anything unique with this quarter's ads.
Pull in for instance, I know you just talked about a large renewal cohort, but I guess I'm wondering in Q4, but I guess I'm wondering on the new business you could this be a new run rate for quarterly.
That adds.
With that we have.
Said.
Quite transparently that this was an area that we need to improve in.
We're certainly pleased with the results and I think it shows that.
First half was an anomaly, we still have ways to go I.
I will tell you it was the highest.
Gross adds that we've ever had as a company and it was driven by the highest gross adds of capella.
Now we've expected that and it's not just the capella <unk> value proposition. It's also you know.
Operational rigor and the things that we've been focused on on a go to market expanding our partnership. So there's a there's a lot of what I'd like to say lines in the water to drive the improvement there and there is no bigger focus area that we have as a company.
And I think this is much more indicative of what we can and will be delivering on a go forward basis.
Got it thanks and.
Maybe Gregg you know this might be a topic of analyst day, but as we're thinking about our models next year you didn't obviously guide for fiscal 'twenty five but are there any guideposts that you would give us on sort of growth or margins.
Yes sort of.
No on your philosophy on sort of.
It's really trying to focus on growth, but also expand expand margins as well than any any sort of commentary that you can provide us with tonight.
We should think about next year.
Yeah, Hey, Matt good to hear from you look there'll be a lot more obviously next next week, we are not going to be giving specific fiscal 'twenty five guidance until we get to our Q4 earnings. So 90 days from now, but we will obviously provide some sort of long term view of how we're thinking about it that said we are extremely mindful.
<unk>.
Profitability free cash flow op income and we are working to create a more efficient model get more leverage out of the model and again I think you saw some of that continue to come through this quarter and all year and we're just committed to continuing to improve our margin.
Margin profile and move our way to profitability.
Got it thanks guys.
Thank you.
Our next question comes from the line of Jason Ader with William Blair. Please proceed with your question.
Yeah. Thank you. Good afternoon, guys just wanted to ask first for you Greg on Q1.
I know, you're not giving specific guidance, but if I look at the last.
Two <unk> to Q1, it was down a little bit sequentially from Q4 to Q1, So just remind us on the seasonality and then the other kind of puts and takes.
Q4 turns into Q1.
Yeah, Hey, Jason I'll give you some sort of <unk>.
General is as I was alluding before Q4 is typically our largest quarter of the year and Q1 is typically our smallest quarter of the year, depending on the year of course, so I think the seasonality. We've seen historically is reasonable to think about but again, we're not guiding yet as I mentioned, we've got a couple of larger deals that could fall in.
Q4, Q1, which would change that dynamic. So that's why we're not ready to sort of come out with guidance, because we just really need to see how thats going to play out timing wise theyre going to happen. It's just a matter of.
When not if so but I think again seasonality wise <unk> seen historically, our Q4 to Q1 is typically.
It's not nearly as big because the renewal pool, just not is not as robust.
Gotcha, Okay and then.
For you, Matt you talked about the column there analytics feature.
I don't know it just like.
Is this a factor here.
Every every company introduces features and it talks about how great their but how how important is this.
Maybe talk about some use cases, where this might be used.
Just trying to get a greater sense on on the importance of this new capability.
Yeah, Jason I appreciate the question.
We think it's quite significant.
As we look into the future.
We start in thinking about what our customers are trying to solve with their application strategy.
And every company around the world is trying to figure out how to use technology to improve their business and get closer to their customers.
And in order to do that you need to not only have all of the operational data at your disposal, but to make these applications truly real time adaptive taking there.
<unk> capabilities to the next level.
Is injecting data that youre analyzing alongside the operational data store.
And as much as people are focused on analytics in the world. The vast majority of enterprise data is not analyzed and Furthermore, you have this significant gap.
This latency gap that's existed for 50 years in.
The wall that exists between operational analytical data, what we've done with this capability and our underlying architecture is enable developer to develop these real time adaptive applications by combining not just the data that we manage on our data store, but ingesting data from.
At $3 from others relational sources sorts of like Mongo in a real time basis, and then feed those insights directly into the application while it's performing.
Another data platform that can do this natively across jae song, eliminating ECL, reducing efficiency and what the underlying architecture to maintain the operational performance and SLA that modern databases require so this is quite a big step for us and when we think about the data layer.
Air for.
Applications in an AI driven world, obviously, we've talked about vector being on the road map, which will.
Add to our architecture, but we like to think about the density of the application that we are supporting and that data layer operational analytical.
And all of these capabilities coming together in a single platform is our advantage and we think that never have have our core capabilities and the platform that we've developed with these.
Scale and performance cloud to edge requirements ever been more relevant.
And so we're quite excited about that and getting quite frankly pretty phenomenal feedback from customers that are.
That understand the importance of this and aligning it to their overall digital transformation that application strategies.
And can you give us some examples of use cases for the columnar, calling around analytics technology. Yeah. So I mean this is about taking applications to the next level. So.
I'll give you a few generic one let's say your.
Buying something on an e-commerce store and we all know you get a recommended product.
But if that recommendation was completely personalized to you what is the product descriptions matched what was happening in your life, if you're shopping at a home improvement store and it has the awareness that youre doing a home remodel will now the product description map the type of home remodel that you're delivering and then can bring in the.
Inventory that meets those needs at your local store. These are real time personalized applications that are changing based on what's happening.
In your World with you as a user streaming services often recommend shows for us, but what if it's aware of what's happening in my connected home and recommends to pause something because the beer in my fridge is now at a temperature that I like it and I'm not going to Miss a particular portion of that game or I get an alert that.
<unk>.
They're one of my favorite teams of starting that that level of adaptive application without.
Slowing down the performance, but taking it to the next level. That's what happens when you take all of these analytics and feed it into.
Our real time applications with access to information.
From from every possible input structured unstructured et cetera.
Great. Thank you.
Thank you. Our next question comes from the line of Brad Reback with Stifel. Please proceed with your question.
Great. Thanks, very much Matt.
Matt what if anything needs to change at Capella in order for it to be a true volume customer acquisition engine.
Right I think we're I think we're heading that direction.
We're excited.
Excited to spend time next week, we're going to talk a lot about this idea that capella is at the inflection point.
I think the product that we have the usability the integration of things like IQ is going to.
Give us the opportunity to augment our highly sophisticated enterprise go to market motion and benefit from more product led growth.
And I think we're to the point now where we have the solution.
During that up with how we're marketing.
Sure.
Investing in go to market resources, how we're thinking about partnerships.
And so I do think we're at the point of that hockey stick, where we're going to start to see that inflection coming.
Okay, that's great thanks very much.
Thanks, Brad.
Yeah.
Thank you. Our next question comes from the line of Taz <unk> with Wedbush Securities. Please proceed with your question.
Hey, guys. Thanks for taking my question I have a question on <unk>.
On Capella plus one.
We're very positive on the the new logo traction doing that Capella can you comment on the.
The deal sizes are the values of these discrete ideas that comparing to enterprise new logo adds the smaller houses at the same level of the enterprise deals.
Yeah, Hey, Todd This is Greg Thanks for the question yes.
New logos and Capella are certainly smaller than what we would see on the enterprise side of the business.
But the again the time to value and again, we're going to talk about this a lot next week is the growth rate on that is substantial compared to the enterprise business. So they start smaller, but they grow faster and that we always assume that would be the nature of of the capella.
Model now that said.
There are times, where we get larger ones, but in general there are smaller than the enterprise part of the business that we actually want that and we're building programs and incentives to get customers started one of the friction points that we have in landing new logos with the enterprise business is trying to find the exact sizing.
The customers are going to commit to knowing that.
Applications are dynamic and people are picking us because we're a platform with capella, we can remove that friction entirely just get people going and then they can.
AG credits or go with a pure consumption model, so we anticipate that and if anything.
I would expect it continues to come down as we as we add more volume that's not to say that there.
Expected value or potential of spend is any smaller it's just the efficiency of landing them and getting them going.
Yeah very helpful. And then a follow up follow up to that matter that you mentioned in the call that you are seeing some customers this quarter consumer head over there I guess commitments or credits and I think that was done this quarter to catalyze that did you change anything in the go to market to make our customers I guess.
Consume faster our user can it faster and it isn't I'm asking is one of your peers Sweat earnings last night spoke about how.
They're changing their go to market model.
Because I assume your salespeople to sell not on a commitment basis, but more on a consumption basis to drive consumption faster. So that people don't just buy the credits and I'll keep them unused so anything that has changed on your go to market side too.
Yes.
And to make customers consume pasture.
Yeah look if I, if I were to talk about.
Operational capabilities that we've matured dramatically over the course of this.
This fiscal year, certainly the last six quarters, it would be on managing consumption, providing incentives throughout our go to market engine.
Everything from.
Quota carrying salespeople SCE resources professional services customer success in aligning to customer needs and being very aware of consumption.
Certainly we want to be prepared if people in rare circumstances are consuming below where we need them and adjust that and help them with their deployments that they anticipated.
May be surprising, but a big part of that is understanding where customers may be running hotter than we think they need to and getting ahead of that so we don't end up with a customer relationship issue.
So the the level of operational investment we've put there in systems tools process and people.
Consumption can be.
Complicated to manage but I think we're leaning into that complexity and feel pretty good about the operational rigor that we have in place to manage that as we go forward and the subsequent incentives, which for me where we are in the business of satisfying customers and we want to make sure that we're.
Helping them with their.
Business strategies, and making sure that capella and couch space are a big part of that getting consumption rate is certainly an important variable.
Just one follow up if I may I think last quarter.
When we look at the number of new logos added overall and the number of new logos that for Capella Capella had a higher <unk>.
Our new logo ads I guess youre, saying that I think you got the benefit of migrations.
Well close from enterprise to Cabela's, that's why the number was higher.
This quarter I think the new logos and new logos are almost almost the same does that is it fair to assume that the.
The migration activity from enterprise to Capella was a little lighter this quarter.
Versus last quarter.
No I think something might be getting lost in the takeaway.
Takeaway there.
Yes.
We mentioned, we're over a fifth of our customer base, Greg can talk about the quarter over quarter.
Apollo girls, but again it was the majority of net logos.
Saw a healthy number of migrations I think all of that is up quarter.
Quarter over quarter.
Specific yes, I mean this quarter the capella customer account grew by more than 25%, whereas last quarter. It grew by 20%, though we're accelerating the pace of.
Yes, Hello customer adds both both that's inclusive of both migration and new logos. So we feel very good about it.
Thank you.
Thanks.
Thank you. Our next question comes from the line of Howard MA with Guggenheim Securities. Please proceed with your question.
Thank you great quarter guys.
And I guess just to dovetail off of pads. This last question.
When we think about the sales and market efficiency levers for Capella, where is the sales force in terms of efforts focused on migrations versus acquiring new logos and that's it for me. Thanks.
Look I think we're appropriately balanced.
To you our jobs as salespeople here, we need to be.
Taking care of our existing customers growing those accounts because of the platform that we bring that's existing applications net new applications, and then obsessing over adding new customers.
You can appreciate that we have.
A fairly mature go to market model on any given rep may have a little more focus on an existing account we have reps that are almost entirely focused on new.
But if we look at the collective.
Army of field resources out there, there's not a moment that goes by at the company that were not.
Obsessing over both I think one of the things that.
Fantastic about capella as we not only top.
Exclusively about new logos, but new applications and our ability to win new apps, both new logos and existing accounts is better than it ever has been.
We spent a lot of time on.
Our compensation and incentive plans to ensure that we have the appropriate balance.
You know I spent a lot of time thinking about the.
Operational focus and rigor across the board but.
I think we need to to achieve our medium and long term objectives, we need to do both and I think we are striking that balance.
If if in any given region or territory or down to the individual rep. We were off we make those adjustments on a pretty real time basis. So.
Again, I'm pretty proud of the operational execution across the board and Testament to our field leaders in navigating this dynamic along with many others.
Okay. Thanks, Matt.
Thank you.
There are no further questions at this time I'd like to turn the floor back over to chairman and CEO, Matt Kane for closing comments.
Thanks, operator, and thanks to everyone for joining us today I'm sure you can tell we're very pleased with how the business is performing and are working hard to make fiscal 2020 for our best year yet.
I look forward to seeing many of you all next week in New York and Hope to see you then thank you.
Yeah.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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