Q2 2025 Couchbase Inc Earnings Call

Speaker Change: Greetings and welcome to the Cowcheap Base, second quarter 2025 earnings conference call. At this time, I'll participate in a listen-only mode.

Operator: Conference call. At this time, Alpertizepinds are in a listen-only mode.

Operator: The question and answer session will follow a 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.

Speaker Change: the question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is not my pleasure to introduce your host, Edward Parker at ICR. Thank you. You may begin.

Edward Parker: It is not my pleasure to introduce your host, Edward Parker, at ICR. Thank you. You may begin.

Matthew Cain: Good afternoon and welcome to Couchbase's second quarter of 2025 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me, our Couchbase's chair, President and CEO, Matt Cain, and CFO, Greg Henry.

Speaker Change: Good afternoon, and welcome to Cowspace's second quarter to 2025 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me, our Cowspace's Chair, President and CEO Matt Cain, and CFO Greg Henry.

Matthew Cain: Today's call will contain four looking statements, which include statements concerning financial and business transit strategies, market size, product capabilities, our expected feature business and financial performance, and financial condition, and our guidance for future periods. These statements reflect our days as of today only and should not be relied upon as representing our views at any subsequent dates. We do not undertake any duties to update these statements. Four looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results.

Speaker Change: Today's call will contain forward-looking statements, which include statements concerning financial and business trends and strategies, market size, product capabilities, or expected feature of business and financial performance and financial condition in our guidance or future periods.

Speaker Change: These statements reflect our views as of today, only and should not be relied upon as representing our views that any subsequent dates, we not undertake any duties of date these statements.

Gregory Henry: We will also discuss a different material 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 AIN report on Form 10-K. We will report on Form 10-Q filed with the SEC.

Speaker Change: for looking at statements by their nature, address matters that are subject to risk and uncertainties that could cause actual results at different materialy from expectations.

Speaker Change: 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 time report on Form 10K, or for the report on Form 10Q file with the SEC.

Gregory Henry: During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance to generally accepted accounting principles. A reconciliation of these non-GAAP financial measures for 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.

Speaker Change: During the call, we will also discuss certain non-gap financial measures which are not prepared in accordance to generally accepted accounting principles.

Speaker Change: A reconciliation of these non-gap financial measures to the most directly comparable gap 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 industrial relations website. With that, let me turn the call over to Matt.

Matthew Cain: With that, let me turn the call over to Matt. Thank you, Edward, and good afternoon, everyone. I'm pleased to report that in Q2, we made strong progress on our full-year objectives, delivering excellent new customer logo growth, strong new business, meaningful growth and cappellate consumption and ARR mix, and continued progress on the growth, efficiency, and leverage across our organization. Daniel Recurring Revenue, or ARR, was 214 million, up 18% year-over-year and 19% in constant currency. Revenue in the second quarter was 51.6 million, up 20% year-over-year and above the high end of our guidance range. Non-GAAP operating loss in Q2 was also above the high end of guidance, at 4.1 million, representing a negative operating margin of 8%, 2.2 percentage points above the midpoint of our implied operating margin guidance range.

Matt Cain: Thank you, Edward, and good afternoon, everyone. I'm pleased to report that in Q2, we made strong progress on our full-year objectives, delivering excellent new customer logo growth, strong new business, meaningful growth in Coppela consumption and ARR mix.

Speaker Change: and continued progress on the growth, efficiency, and leverage across our organization.

Speaker Change: In your recurring revenue, or ARR, was 214 million up 18% year over year and 19% in constant currency. Revenue in the second quarter was 51.6 million up 20% year over year, and above the high end of our guidance range.

Speaker Change: Non-gap operating loss in Q2 was also above the high end of guidance at 4.1 million, representing a negative operating margin of 8%. 2.2 percentage points above the midpoint of our implied operating margin guidance range.

Matthew Cain: We added 62 net new logos, up from 12 in the second quarter of fiscal 2024 and 19 from last quarter, not including the additional 39 customers added due to our change in methodology made in Q1 to include on-demand customers. Cappella now represents 31% of our customer base, and 13.5% of our total ARR, both up two points sequentially. Over the past several quarters, I've discussed the leverage that we've seen building across our business as a result of our efforts to improve operational rigor and efficiency. We made further progress on this front in Q2, with our second quarter Rule of 40 score improving 14 points year-over-year.

Speaker Change: We added 62 net new logos.

Speaker Change: up from 12 in the second quarter of fiscal 2024 and 19 from last quarter, not including the additional 39 customers added.

Speaker Change: due to our change in methodology made in Q1 to include on-demand customers.

Speaker Change: Capella now represents 31% of our customer base and 13.5% of our total ARR both up 2. sequentially.

Speaker Change: Over the past several quarters, I've discussed the leverage that we've seen building across our business as a result of our efforts to improve operational rigor and efficiency. We made further progress on this, front in Q2, with our second quarter rule of 40 score improving 14.0 over year.

Matthew Cain: driver, driving efficiency across go-to-market, R&D, and all aspects of our operations will continue to be one of our highest priorities for the balance of fiscal 2025. I'm proud of the strong execution of the entire Couchbase team and what continues to be a challenging macroeconomic environment. In Q2, we saw new customer wins across a variety of industries, including healthcare, financial services, manufacturing, retail, technology and communications, and travel and hospitality. We saw strong-grows new ARR growth across new and existing customers and strong Capella migrations and new logo additions, including a mid-six-figure Capella land, the largest in our history.

Speaker Change: Driving efficiency across go-to-market R&D and all aspects of our operations will continue to be one of our highest priorities for the balance of fiscal 2025.

Speaker Change: I'm proud of the strong execution of the entire couch-based team and what continues to be a challenging macroeconomic environment.

Speaker Change: In Q2, we saw new customer wins across a variety of industries, including healthcare, financial services, manufacturing, retail, technology and communications, and travel and hospitality.

Speaker Change: We saw strong growths new ARR growth across new and existing customers in strong capella migrations and new logo additions, including a mid-6 figure capella land, the largest in our history.

Matthew Cain: Customer uptake and consumption of Capella continues to grow nicely. Our pipeline of large strategic opportunities continues to expand, and we are well positioned to have a very strong second half of the year. And thanks to the hard work of our go-to-market teams, we successfully closed all of the significant deals that slipped from Q1. We delivered one of the best-grows new ARR quarters in company history, and we were able to do so despite a renewal pool, which, as I discussed last quarter, is disproportionately weighted toward the backup of the year. Offsetting the strong execution was a higher level of customer loss and downsell, which resulted in an unanticipated headwind to our ARR performance in Q2.

Speaker Change: Customer uptake and consumption of Capella continues to grow nicely.

Speaker Change: Our pipeline of large strategic opportunities continues to expand, and we are well positioned to have a very strong second half of the year. And thanks to the hard work of our go-to-market teams, we successfully closed all of the significant deals that slip from Q1.

Speaker Change: We delivered one of the best gross new ARR quarters in company history, and we were able to do so despite a renewal pool, which as I discussed last quarter, is disproportionately weighted toward the back half of the year.

Speaker Change: Offsetting the strong execution was a higher level of customer loss and downsell, which resulted in an unanticipated headwind to our AR performance in Q2.

Matthew Cain: While we experienced some churn and downsell in any given quarter, the impact to Q2 was higher and more concentrated than what we normally experienced.

Speaker Change: While we experience some churn and downsell in any given quarter, the impact of Q2 was higher and more concentrated than what we normally experience.

Matthew Cain: Not reflected in this quarter's results, however, was the significant progress we are making with a large number of strategic accounts where we are participating in multi-year initiatives to support the next generation of enterprise applications. Greg will discuss our outlook in more detail in a few moments, but the strong visibility we have across the size, scale, and diversity of these opportunities gives us confidence in our ability to achieve our full-year objectives. Our customers continue to demonstrate a growing commitment to the couch-based platform. As the demand for rich, hyper-personalized, and real-time AI applications accelerates, we believe the core tenets of our value proposition are only becoming more relevant.

Speaker Change: Not reflected in this court as results, however, was the significant progress we are making with a large number of strategic accounts where we are participating in multi-year initiatives to support the next generation of enterprise applications.

Speaker Change: Greg will discuss our outlook in more detail in a few moments, but the strong visibility we have across the size scale and diversity of these opportunities gives us confidence in our ability to achieve our full-year objectives.

Speaker Change: Our customers continue to demonstrate a growing commitment to the couch-based platform. As the demand for rich, hyper-personalized, and real-time AI applications accelerates, we believe the core tenants of our value proposition are only becoming more relevant.

Matthew Cain: In parallel, we're witnessing and participating in an increasing number of strategic projects across our customer base focused on evaluating, architecting, and building the next phase of data infrastructure to support our customer's AI and application requirements. It's becoming clear that many alternative approaches and solutions are failing to meet the long-term demands of enterprises looking to scale their infrastructure to support their next-generation application roadmap. Couch-based was deliberately architected to be the foundation for mission-critical applications, delivering the world's most scalable, performant, and flexible modern-day-to-be. We've intentionally built our platform to combine uncompromising performance with the flexibility of deployment and usage models from cloud to on-premise, and to the edge, and everything in between.

Speaker Change: and Parallel were witnessing and participating in an increasing number of strategic progress projects.

Speaker Change: across our customer base.

Speaker Change: focused on evaluating, architecting, and building the next phase of data infrastructure to support our customers AI and application requirements.

Speaker Change: and it's becoming clear that many alternative approaches and solutions are failing to meet the long-term demands of enterprises looking to scale their infrastructure to support their next generation application roadmap.

Speaker Change: Couch base was deliberately architected to be the foundation for mission critical applications, delivering the world's most scalable, performant, and flexible modern database.

Speaker Change: We've intentionally built our platform to combine uncompromising performance.

Speaker Change: with the flexibility of deployment and usage models from cloud to on-premise and to the edge and everything in between. And with the introduction of Capella, we do so in an easy-to-use and familiar way while at the same time rapidly enhancing our platform with new services.

Matthew Cain: And with the introduction of Capella, we do so in an easy-to-use and familiar way, while at the same time rapidly enhancing our platform with new services. As enterprises endeavor to build the next generation of adaptive applications, we are seeing the need to combine the ever-increasing volumes of data from the spirit and traditionally siloed sources, whether it's structured or unstructured data, broad-based internet data, or proprietary enterprise data, with extremely low latency in a highly connected and performant way. This need will only become more urgent. Our strategy continues to be focused on seizing this moment. It's driven by our architectural foundation that supports a broad range of use cases and workloads, complemented by the low TCO of Capella, enabled by our go-to-market motion, and focused on developers, system architects, and other key stakeholders across our large enterprise target market.

Speaker Change: As enterprises endeavored to build the next generation of adaptive applications.

Speaker Change: We are seeing the need to combine the ever-increasing volumes of data from disparate and traditionally siloed sources, whether it's structured or unstructured data, broad-based internet data, or proprietary enterprise data, with extremely low latency in a highly connected and performant way.

Speaker Change: This name will only become more urgent.

Speaker Change: Our strategy continues to be focused on seizing this moment.

Speaker Change: It's driven by our architectural foundation that supports a broad range of use cases on workloads.

Speaker Change: Complimented by the low TCO of Capella.

Speaker Change: Enabled By our Go to Market Motion and focused on developers.

Speaker Change: System Architects

Speaker Change: and other key stakeholders across our large enterprise target market.

Matthew Cain: Now, turning to product specifics, we are continuously extending our platform with new features and services that are purposely designed to advance the capabilities of developers to build next generation applications. This quarter, we announced the general availability of Couchbase Mobile with vector search, which makes it possible for businesses to offer similarity and hybrid search in their applications on mobile and at the edge. We also introduced Capella free tier, a perpetual free developer environment, which empowers developers to evaluate and explore products and test new features without time constraints as they develop next-generation production-ready applications on couch-based. Developers now have the access, convenience, and simplicity to learn, develop, and deploy applications on Capella in the production.

Speaker Change: Now, turning to product specifics, we are continuously extending our platform with new features and services that are purposely designed to advance the capabilities of developers to build next generation applications.

Speaker Change: This quarter, we announced the general availability of Countspace Mobile with vector search, which makes it possible for businesses to offer similarity and hybrid search in their applications on mobile and at the edge.

Speaker Change: We also introduced Capella Freetere, a perpetual free developer environment, which empowers developers to evaluate and explore products and test new features without time constraints as they develop next generation production ready applications on couch base.

Speaker Change: Developers now have the access, convenience, and simplicity to learn, develop, and deploy applications on Capella in the production.

Matthew Cain: On top of all of this, we g-aid Capella columnar during the quarter. This powerful innovation empowers our customers to unify operational and analytical workloads on a single platform. Our approach reduces complexity, lowers TCO, and accelerates time to market, positioning our customers with the strong foundation in their AI-driven transformation journeys. As modern applications are increasingly being built on higher performance, semi-structured formats like JSON, application teams and IT organizations face growing challenges. The flow of real-time data at scale is severely constrained by the architectural limitations of relational systems. This introduces latency, impacts productivity and performance due to rigid and complicated ETL operations, and impedes real-time operational rightbacks, disrupting critical tasks in today's data-driven environments.

Speaker Change: On top of all of this, we GAed Capella Colomer during the quarter.

Speaker Change: This powerful innovation empowers our customers to unify, operational, and analytical workloads on a single platform.

Speaker Change: Our approach reduces complexity, lowers TCO, and accelerates time to market, positioning our customers with the strong foundation in their AI-driven transformation journeys.

Speaker Change: As modern applications are increasingly being built on higher performance semi-structured formats like JSON, application teams and IT organizations face growing challenges.

Speaker Change: The flow of real-time data at scale is severely constrained by the architectural limitations of relational systems.

Speaker Change: This introduces latency, impacts productivity, and performance due to rigid and complicated ETL operations and impedes real-time operational right-backs, disrupting critical tasks in today's data-driven environments.

Matthew Cain: Overcoming these obstacles is crucial for organizations aiming to harness the full potential of their data in real time. Couchbase is intentionally architected to solve these challenges through its innovative columnar data format, which eliminates the inefficiencies of legacy, rigid, and outdated systems. Our approach paves the way for AI-powered applications to seamlessly integrate operational data with real-time analytics, enabling our customers to deliver more agile, personalized, and cost-effective solutions. We believe this strategy aligns strong strongly with the application agendas of enterprises, where the demand for real-time AI-driven insights is rapidly accelerating. The Pelicolumnar is a transformative achievement for us, and I am thrilled to share the Q2 soft fast adoption and positive feedback from early users across various industries.

Speaker Change: Overcoming these obstacles is crucial for organizations aiming to harness the full potential of their data in real time.

Howchbase: Howchbase is intentionally architected to solve these challenges through its innovative, calling their data format, which eliminates the inefficiencies of legacy, rigid and outdated systems.

Speaker Change: Our approach paves the way for AI power to applications to seamlessly integrate operational data with real-time analytics, enabling our customers to deliver more agile, personalized and cost-effective solutions.

Speaker Change: We believe the strategy aligns strongly with the application agendas of enterprises where the demand for real-time AI-driven insights is rapidly accelerating.

Speaker Change: The Pelocolonner is a transformative achievement for us, and I am thrilled to share the Q2 soft fast adoption and positive feedback from early users across various industries.

Matthew Cain: The strong market response underscores the significant value our customers see in integrating advanced analytics directly with their operational environments. And by combining Capella columnar with advanced vector search capabilities with the unified cloud database platform, we enable enterprises to further reduce costs, simplify operations, and put both the operational and analytical power directly in the hands of developers. To create reliable adaptive applications that scale effortlessly from cloud to edge. What gives us confidence in our strategy is that we continue to see it resonate with our growing customer base. A new Capella customer in Q2 is a financial service company that shows Capella to power their client reporting service in its data hub.

Speaker Change: The strong market response underscores the significant value our customers see in integrating advanced analytics directly with their operational environments.

Speaker Change: and by combining Capella Colomer with advanced vector search capabilities with the unified cloud database platform.

Speaker Change: We enable enterprises to further reduce costs, simplify operations, and put both the operational and analytical power directly in the hands of developers to create reliable adaptive applications that scale effortlessly from cloud to edge.

Speaker Change: What gives us confidence in our strategy is that we continue to see it resonate with our growing customer base.

Speaker Change: A new Capella customer in Q2 is a financial service company that chose Capella to power their client reporting service in its data hub.

Matthew Cain: We were selected because of our ability to enable greater transparency and reporting precision to its commercial clients, including providing intra-day reporting and full transaction detail availability. Another new Capella logo this quarter was an aviation and aerospace component manufacturing company that provides in-slight entertainment and communication solutions to airlines. Requiring a database that would provide performance at scale with the flexibility to power content management of its business critical in-flight entertainment system. This customer selected Couchbase because of the compelling mobile offering and edge capabilities. Turning to expansion, this quarter, a global leader in unified retail commerce solutions, Aptos, expanded its investment in Capella to continue supporting its cloud native point of sale system, Aptos One. Aptos originally selected Couchbase for its mobile and offline first capabilities and was able to reduce infrastructure costs and improve operational efficiencies by migrating Capella.

Speaker Change: We were selected because of our ability to enable greater transparency.

Speaker Change: and reporting precision to its commercial clients, including providing inter-day reporting and full transaction detail availability.

Speaker Change: Another new Capella logo this quarter was an aviation and aerospace component manufacturing company that provides in-flight entertainment and communication solutions to airlines.

Speaker Change: Requiring a database that would provide performance at scale with the flexibility to power content management of its business critical in flight entertainment system, this customer selected couch base because of the compelling mobile offering and edge capabilities.

Speaker Change: Turning to expansion, this quarter, a global leader in unified retail commerce solutions, aptos.

Speaker Change: Expanded its investment in Capella to continue supporting its cloud-native point-of-sale system, Apptoes 1.

Speaker Change: Apto's originally selected couch base for its mobile and offline first capabilities and was able to reduce infrastructure costs and improve operational efficiencies by migrating the Capella.

Matthew Cain: And it's continued to invest in Capella for easier deployment of new products and features while reducing database administration. Another Capella expansion came from an automobile trading company, Toyota Astromotor. This customer is leveraging Capella to deliver an application to improve customer experience end to end and decided to expand its investment in Capella because of its performance advantage. This comprehensive mobile application will serve all of Toyota's clients' needs. A global leader in the convenience, foods, and beverage space also expanded their Couchbase investment this quarter. Initially needing a database solution with offline available functionality for its sales application used by field representatives, this customer again expanded with Couchbase because of our database's superior offline-first capabilities, flexibility, and ability to process a high number of transactions.

Speaker Change: and has continued to invest in Capella for easier deployment of new products and features while reducing database administration.

Speaker Change: Another compelling expansion came from an automobile training company Toyota AstroModer.

Speaker Change: This customer is leveraging Capella to deliver an application to improve customer experience and to end and decide to do expand its investment in Capella because of its performance advantage. This comprehensive mobile application will serve all of Toyota's clients' needs.

Speaker Change: The global leader in the convenience, foods, and beverages space also expanded their couch space investment this quarter.

Speaker Change: Initially needing a database solution with offline available functionality for its sales application used by field representatives.

Speaker Change: This customer, again, expanded with couch base because of our database's superior offline first capabilities, flexibility and ability to process high number of transactions.

Matthew Cain: We also had an important new relationship with a large ISB, which contributed a significant number of new logos in the quarter. Partner-led sales continues to be a key component of our go-to-market strategy, and ISBs can be a force multiplier to our existing motion and reinforces the value proposition that we bring to customers.

Speaker Change: We also had an important new relationship with a large ISB which contributed a significant number of new logos in the quarter.

Speaker Change: Partner-led sales continues to be a key component of our go-to-market strategy, and ISVs can be a force multiplier to our existing motion, and reinforces the value proposition that we bring the customers.

Matthew Cain: Finally, I'm excited to welcome Josh Harbor as our new Chief Marketing Officer. Over his 20 years in marketing roles at both private and public software and technology companies, he has demonstrated a strong track record of accelerating growth and achieving strategic outcomes. Josh's experience will be instrumental in leading all aspects of our marketing strategy and execution. We're thrilled to have Josh as part of our world-class team.

Speaker Change: Finally, I'm excited to welcome Josh Harvard as our new Chief Marketing Officer.

Josh Harvard: Over his 20 years in marketing roles at both private and public software and technology companies, he has demonstrated a strong track record of accelerating growth and achieving strategic outcomes.

Speaker Change: Josh's experience will be instrumental in leading all aspects of our marketing strategy and execution. We're thrilled to have Josh as part of our world-class team.

Matthew Cain: In conclusion, I'm pleased with our teams have responded and executed in the second quarter. We made progress across our strategic priorities, delivered strong new customer growth, meaningfully increased our Capella mix, successfully launched Capella columnar, and continued to drive efficiency across our model. Our customers and prospects are focused on building the next generation of adaptive applications while addressing the growing data challenges of an increasingly AI-powered world. Our foundation rests upon a carefully architected platform purpose-built to enable these mission-critical applications, and I'm honored that Couchbase is serving as a strategic partner helping customers navigate this journey. We are not fully satisfied with our net new AIR performance in the first half of the year.

Speaker Change: In conclusion, I'm pleased with how our teams have responded and executed in the second quarter.

Speaker Change: We made progress across our strategic priorities, delivered strong new customer growth, meaningfully increased our Capella mix, successfully launched Capella Colomer and continued to drive efficiency across our model.

Speaker Change: Our customers and prospects are focused on building the next generation of adaptive applications, while addressing the growing data challenges of an increasingly AI-powered world.

Speaker Change: Our foundation rests upon a carefully architected platform, purpose-built to enable these mission-critical applications, and I'm honored to couch-base a serving as a strategic partner helping customers navigate this journey.

Speaker Change: We are not fully satisfied with our net new era performance in the first half of the year. That said, we're making rapid operational progress across the business, inclusive of several key strategic accounts where we are emerging as a strategic and long-term critical platform provider.

Matthew Cain: That said, we're making rapid operational progress across the business, inclusive of several key strategic accounts where we are emerging as a strategic and long-term critical platform provider. This robust pipeline of exciting opportunities gives us confidence in our ability to drive substantial wins and expansions going forward. This dynamic, taking with other important levers in the business, reinforces our confidence in delivering the year. We will work tirelessly to support our customers and acquire new ones, enhance and extend our technology leadership, deliver new capabilities and services, and drive increased Capella adoption, and will do so in a more efficient manner and with a dedicated focus on a Rule of 40 trajectory.

Speaker Change: This robust pipeline of exciting opportunities gives us confidence in our ability to drive substantial wins and expansions going forward. This dynamic, taking with other important levers in the business, reinforce our confidence in delivering the year.

Speaker Change: We will work tirelessly to support our customers and acquire new ones, enhance and extend our technology leadership, deliver new capabilities and services, and drive increased to fellow adoption.

Speaker Change: and will do so in a more efficient manner and with the dedicated focus on a rule of 40 trajectory.

Matthew Cain: As I have said many times, at Couchbase, we attack hard problems driven by customer outcomes.

Speaker Change: As I have said many times, at couch base, we attack hard problems driven by customer outcomes.

Gregory Henry: With that, I'll now hand the call over to Greg to discuss our results in more detail.

Speaker Change: with that. I'll now hand the call over to Greg to discuss our results in more detail. Greg?

Gregory Henry: Greg? Thank you. Thanks, Matt, and thanks everyone for joining us.

Gregory Henry: I'm pleased with the progress we made in the quarter, including our top and bottom line performance, new business generation, logo ads, and strong execution across all aspects of our business. Despite ongoing macroeconomic headwinds, we continue to see strong demand for our platform and remain confident in our trajectory and ability to achieve our 2025 goals and the objectives we laid out at our Analyst Day.

Greg Henry: Thanks, Matt, and thanks everyone for joining us. I'm pleased with the progress we made in the corridor, including our top and bottom line performance, new business generation, logo ads, and strong execution across all aspects of our business.

Greg Henry: to spite ongoing macroeconomic headwinds. We continue to see strong demand for our platform and remain confident in our trajectory and ability to achieve our 2025 goals and the objectives we laid out at our analyst day.

Gregory Henry: I'll now walk you through our second quarter financial results in more detail before providing our guidance for the third quarter and fiscal year. Total ARR was $214 million, representing growth of 18% year over year and 3% sequentially at the midpoint of our guidance range. Foreign currency fluctuations added approximately a one-point headwind to our ARR growth rate. We enter the second quarter with $28.9 million of Cappella ARR, up 20% sequentially and representing 13.5% of our total ARR, up two points from 11.5% last quarter.

Speaker Change: I'll now walk you through our second quarter of financial results in more detail before providing our guidance for the third quarter and fiscal year.

Speaker Change: Total AR was $214 million, representing growth of 18% year over year and 3% sequentially at the midpoint of our guidance range.

Speaker Change: Foreign currency fluctuations added approximately a 1. headwind to our ARR growth rate. We know the second quarter was $28.9 million of Capella ARR up 20% sequentially and representing 13.5% of our total ARR up 2.11.5% last quarter.

Gregory Henry: As Matt mentioned, while Q2 was among our strongest quarters from a new business perspective, we experienced unexpected loss and downsell from a few large customers, which impacted our ending ARR balance. While there is no commonality to any of these, we note that one of the losses was due to the ceasing of operations following its acquisition by a larger entity. I'll discuss our outlook in more detail in a moment, but we remain confident in our ability to retain and expand our customer base and, more specifically, our largest customers. Turning to revenue, second quarter total revenue was $51.6 million, up 20% year over year and 1% from last quarter.

Speaker Change: As Matt mentioned, while Q2 was among our strongest quarters from a new business perspective, we experienced unexpected loss and downsell from a few large customers, which impacted our ending ARR balance.

Speaker Change: Father is no commonality to any of these. We note that one of the losses was due to ceasing of operations following its acquisition by a larger entity. I'll discuss our outlook in more detail in a moment, but we remain confident in our ability to retain expand our customer base and more specifically our largest customers.

Speaker Change: Turning to revenue, second quarter total revenue was $51.6 million, up 20% year over year and 1% from last quarter. Second quarter software revenue was $49.3 million, also up 20% year over year and 1% sequentially.

Gregory Henry: Second quarter's software revenue was $49.3 million, also up 20% year over year and 1% sequentially. The remaining $2.3 million came from professional services revenue, up 5% year over year and flat sequentially. Our second quarter ARR per customer was $246,000, down from Q2 2024 and down from $257,000 in the first quarter, largely driven by our strong new logo additions in the quarter. As a reminder, ARR per customer growth could moderate or decline as our Cappella mix continues to grow in contribution. Our dollar-based net retention rate or NRR continues to exceed 115%. We executed the quarter with 869 customers, an increase of 62 net new customers from last quarter.

Speaker Change: The remaining $2.3 million came from professional services revenue of 5% year and flat sequentially.

Speaker Change: Our second quarter ARR per customer was $246,000, down from $2,224 and down from $257,000 in the first quarter, largely driven by our strong new logo additions in the quarter.

Speaker Change: As a reminder, ARR Procustomer Growth could moderate or decline as a couple of mixed continues to grow in contribution.

Speaker Change: are dollar-based net retention rate or NRR continues to exceed 115%.

Speaker Change: We exited the quarter with 869 customers, an increase of 62 net new customers from last quarter. Our Capella customer logo comp grew by 37 in the quarter. I continue to be encouraged by our solid retention metrics, strong Capella ARR growth, and ability to consistently expand new logos.

Gregory Henry: Our cappella customer logo count grew by 37 in the quarter.

Gregory Henry: I continue to be encouraged by our solid retention metrics, strong Cappella ARR growth and ability to consistently expand new logos.

Gregory Henry: In discussing the remainder of the income statement, please note that unless otherwise stated, all references to expenses, results of operations, and share count are on a non-GAAP basis. We remain focused on efficiently growing our business. I'm pleased with our efforts on this front, once again resulting in outperformance against our operating loss outlook. Our second quarter of gross margin was 88.3%. This compares to 87.2% from Q2 of last year and 89.9% last quarter, benefiting from sustained enterprise growth profit margin strength and lower services revenue mix, offset by growing cappella mix, which inherently carries a lower gross margin.

Speaker Change: In discussing the remainder of the income statement, please note that in what's otherwise stated, all references to expenses, results of operations, and share account on a non-gap basis.

Speaker Change: We remain focused on efficiently drawing our business. I'm pleased with our efforts on this front, once again resulting in all performance against our operating loss outlook.

Speaker Change: Our second quarter gross margin was 88.3%, this compares to 87.2% from 22 of last year and 89.9% last quarter, benefiting from sustained enterprise gross profit margin strength, and lower services revenue mix offset by growing capella mix, which inherently carries a lower gross margin.

Unknown Executive: Conference Call. At this time, I'll participate in the listen only mode. The question and answer today.

Edward Parker: With me, our couchbases chair, president and CEO, Matt Cain, and CFO, Greg Henry. Today's call will contain four looking statements, which include statements concerning financial and business transit strategies, market size, product capabilities, our expected future business and financial performance and financial condition, and our guidance or future periods. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent dates, but we do not undertake any duties to update these statements.

Gregory Henry: Johnson. Exercising expense discipline and finding opportunities for cost efficiencies continues to be a priority. Second quarter sales and marketing expenses were $29.6 million, or 57% of revenue. This is down from 65% of revenue in Q2 of fiscal 2024. Like last quarter, increasing sales and marketing efficiency was a priority of ours in Q2. Research and development expenses were $13 million or 25% of revenue, down from 29% from Q2 of last year. General administrative expenses for $7.1 million or 14% of revenue compared to 15% of revenue a year ago. Operating loss for the second quarter was $4.1 million, or a negative 8% operating margin.

Edward Parker: Four looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results at different materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to the risk discussed in today's press release and our most recent AINOR report on form 10K, or fully report on form 10Q, filed with the SEC. During the call, we will also discuss certain non-gap financial measures, which are not prepared in accordance to generally accept the accounting principles.

Speaker Change: Exercising expense discipline and finding opportunities for cost efficiencies continues to be a priority.

Speaker Change: 2nd quarter sales and marketing expenses were $29.6 million, or $57 per cent revenue. This is down from 65 per cent of revenue in Q2 of fiscal 2024. Like last quarter, increasing sales and marketing efficiency was a priority of ours in Q2.

Speaker Change: Research and Development expenses were $13 million or 25% of revenue down from 29% from Q2 of last year.

Speaker Change: General Administrative expenses were $7.1 million or 14% of revenue compared to 15% of revenue a year ago.

Edward Parker: A reconciliation of these non-gap financial measures to the most directly comparable gap 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 industrial relations website.

Speaker Change: Operating loss for the second quarter was $4.1 million or negative 8% operating margin. This compares to a loss of $9.2 million or a negative 21% operating margin in Q2 of last year.

Gregory Henry: This compares to a loss of $9.2 million or a negative 21% operating margin in Q2 of last year.

Gregory Henry: Net loss attributable to common stockholders was $2.9 million, or negative 6 cents per share. Turning to the balance sheet, we entered the second quarter with $156.1 million in cash, cash equivalents, and short-term investments. We continue to remain well capitalized for executing against our long-term strategy. A remaining performance obligations or RPO was $215.8 million at the end of Q2, up 27% over year. We expect to recognize approximately 63% or 136.2 million dollars of total RPO as revenue over the next 12 months, representing growth of 19% over year.

Matthew Cain: With that, let me turn the call over to Matt. Thank you, Edward, and good afternoon, everyone. I'm pleased to report that in Q2, we made strong progress on our full-year objectives, delivering excellent new customer logo growth, strong new business, meaningful growth in cappellic consumption and ARR mix, and continued progress on the growth, efficiency, and leverage across our organization. AINOR recurring revenue, or ARR, was 214 million, up 18% year-over-year and 19% in constant currency.

Speaker Change: Net loss attributable to common stockholders was $2.9 million or negative 6 cents per share.

Speaker Change: Turning to the balance sheet, we entered the second quarter with $156.1 million in cash, cash equivalent, and short-term investments. We continue to remain well capitalized for executing against our long-term strategy.

Speaker Change: A remaining performance obligations, or RPO, with $215.8 million at the end of Q2, up 27% year over year.

Speaker Change: We expect to recognize approximately 63% or 136.2 million dollars of total RPO is revenue over the next 12 months, representing growth of 19% over the year.

Matthew Cain: Revenue in the second quarter was 51.6 million, up 20% year-over-year, and above the high end of our guidance range. Non-gap operating loss in Q2 was also above the high end of guidance at 4.1 million, representing a negative operating margin of 8%, 2.2 percentage points above the midpoint of our implied operating margin guidance range. We added 62 net new logos up from 12 in the additional 39 customers, due to our change in methodology made in Q1 to include on-demand customers, cappella now represents 31% of our customer base, and 13.5% of our total ARR, both up to points sequentially.

Gregory Henry: As a reminder, we experienced fluctuations in our RPO balances due to a host of factors, including renewal timing, as well as changes in average contract duration. Operating cash flow for the second quarter was negative $4.9 million. Free cash flow was negative $5.9 million, or a negative 11.5% free cash flow margin.

Speaker Change: has a reminder, we experience fluctuations in our uphill balances due to a host of factors, including renewal timing, as well as changes in average contract duration.

Speaker Change: Cooperate in cash flow for the second quarter was negative $4.9 million.

Speaker Change: Free cash flow was negative $5.9 million, or a negative 11.5% free cash flow margin.

Gregory Henry: We remained committed to being free cash flow positive for fiscal 2026.

Speaker Change: We remain committed to being free cash flow positive for Fiscal 2026.

Gregory Henry: Now, I will provide our guidance for Q3 and the full year of fiscal 2025. As Matt discussed, we saw strong momentum across our business in Q2 and our pleas with the execution of our teams. We continue to expect Capella to be an important growth driver for our business, complemented by investments enhancing our product capabilities, partner ecosystem, and go-to-market motion. As we have previously discussed, due to our customer base of large enterprises, the mission-critical nature of many of the applications we support and the sensitivities that our renewals, upsells, and Capella migrations have on our reporting metrics, including ARR, quarterly timing is always an important element of our business and sometimes difficult to predict.

Speaker Change: Now, I will provide our guidance for Q3 and the full year of fiscal 2025.

Speaker Change: As Matt discussed, he saw strong momentum across our business in Q2, and are pleased with the execution of our teams. We continue to expect capital to be an important growth driver for our business, complemented by investments in enhancing our product capabilities, partner ecosystem, and go to market motion.

Matthew Cain: Over the past several quarters, I've discussed the leverage that we've seen building across our business as a result of our efforts to improve operational rigor and efficiency. We made further progress on this front in Q2 with our second quarter rule of 40 score, improving 14 points year-over-year. Driving efficiency across go-to-market, R&D, and all aspects of our operations will continue to be one of our highest priorities for the balance of fiscal 2025.

Speaker Change: and we are previously discussed due to our customer base of large enterprises, the mission critical nature of many of the applications we support and the sensitivities that our renewals, pop-cells and repellent migrations have on a reporting metrics.

Speaker Change: including ARR, quarterly timing is always an important element of our business and sometimes difficult to predict.

Gregory Henry: As such, given the composition of our renewal pool and pipeline of large opportunities, we continue to expect our net new ARR growth to be disproportionately weighted towards the back half of the year and, in particular, Q4. In addition, I'd like to mention a specific ARR dynamic that is having a more pronounced impact on our outlook relative to prior years. On occasion, given the strategic nature of our customer engagements, our contracted deals can include future increasing ARR, which can contribute to our ARR visibility. Typically, in a quarter, we have any pre-contracted ARR is relatively modest. However, we currently have a substantially larger than normal amount of contracted ARR with start dates in Q4, which is contributing both to our strong second half visibility and greater than normal weighting of net new ARR discussed above.

Speaker Change: As such, given the composition of our renewal pool and pipeline of large opportunities, we continue to expect our net new ARR growth to be disproportionately weighted towards the back half of the year in a particular Q4.

Matthew Cain: I'm proud of the strong execution of the entire Couchbase team and what continues to be a challenging macroeconomic environment. In Q2, we saw new customer wins across a variety of industries, including health care, financial services, manufacturing, retail, technology and communications, and travel and hospitality. We saw strong growths new ARR growth across new and existing customers and strong Capella migrations and new logo additions, including a mid-six figure Capella land the largest in our history.

Speaker Change: In addition, I'd like to mention a specific AR dynamic that is having a more pronounced impact on our outlook relative to prior years.

Speaker Change: On occasion, given strategic nature of our customer engagement, our contract of deals can include future increasing ARR, which can contribute to our ARR visibility.

Speaker Change: Typically, in a quarter we have any pre-contracted error, is relatively modest.

Speaker Change: However, we currently have it substantially larger than normal amount of contracted AR was start dates in Q4, which is contributing both to our strong second half visibility and greater than normal waiting of net new AR discussed above.

Matthew Cain: Customer uptake and consumption of Capella continues to grow nicely. Our pipeline of large strategic opportunities continues to expand, and we are well positioned to have a very strong second half of the year. And thanks to the hard work of our go-to-market teams, we successfully closed all of the significant deals that slip from Q1. We delivered one of the best-grossed new ARR quarters in company history, and we were able to do so despite a renewal pool, which as I discussed last quarter, is disproportionately weighted toward the back half of the year.

Gregory Henry: Finally, we remain mindful of the macroeconomic headwinds and continue to carefully monitor their outlook on our business. As such, our outlook assumes a consistent degree of conservatism to account for these variables, as well as lack of visibility into how the macroeconomic environment may impact upsell and migration timing, as well as consumption trends for our emerging as a service offering. With these factors in mind, for the third quarter of fiscal 2025, we expect total revenue in a range of $250.3 million to $251.1 million or year-over-year growth of 11% at the midpoint. We anticipate ARR in the range of $218.5 million to $221.5 million, representing 17% growth year-over-year at the midpoint.

Speaker Change: Finally, we remain mindful of the macroeconomic headwinds and continue to carefully monitor how look on our business.

Speaker Change: has such are all look assumes a consistent degree of conservatism to account for these variables as well as lack of visibility into how the macroeconomic environment may impact upsell and migration timing as well as consumption trends for our emerging as a service offering.

Speaker Change: With these factors in mind, for the third quarter of fiscal 2025, we expect total revenue in the range of 50.3 million to 51.1 million dollars, or year over year growth of 11% at the midpoint.

Matthew Cain: Offsetting the strong execution was a higher level of customer loss and downsell, which resulted in an unanticipated headwind to our ARR performance in Q2. While we experienced some churn and downsell in any given quarter, the impact to Q2 was higher and more concentrated than what we normally experienced.

Speaker Change: We anticipate ARR in the range of $218.5 million to $221.5 million, representing 17% growth year over year at the midpoint.

Gregory Henry: We expect non-GAAP operating loss in the range of negative $5.5 million to negative $4.5 million. For the full year of fiscal 2025, we are raising our revenue outlook while maintaining our ARR guidance and decreasing our operating loss guidance, or encouraged by the pipeline opportunities in overall business momentum heading into the second half of the year. As such, we remain confident in our ability to achieve our full year ARR guidance. We now expect total revenue in the range of $205.1 million to $209.1 million, or year-over-year growth of 15% at the midpoint. We continue to expect ARR in the range of $235.5 million to $240.5 million, representing 17% growth at the midpoint.

Speaker Change: We expect non-gab operating loss in the range of negative 5.5 million to negative 4.5 million dollars.

Matthew Cain: Not reflected in this quarter's results, however, was the significant progress we are making with a large number of strategic accounts, where we are participating in multi-year initiatives to support the next generation of enterprise applications. Greg will discuss our outlook in more detail in a few moments, but the strong visibility we have across the size, scale, and diversity of these opportunities gives us confidence in our ability to achieve our full-year objectives. Our customers continue to demonstrate a growing commitment to the couch-based platform.

Speaker Change: For the full year of fiscal 2025, we are raising our revenue outlook while maintaining our AR guidance and decreasing our operating loss guidance.

Speaker Change: or encouraged by the pipeline opportunities in overall business momentum heading into the second half of the year. As such, we remain confident our ability to achieve our full year AR guidance.

Speaker Change: We now expect total revenue in the range of $25.1 million to $29.1 million, or you overyear growth of 15% the midpoint.

Speaker Change: We continue to expect ARR in the range of $235.5 million to $240.5 million, representing 17% growth at the midpoint. And finally, we expect a non-gap operating loss in the range of negative $24.5 million to negative $19.5 million.

Matthew Cain: As the demand for rich, hyper-personalized, and real-time AI applications accelerates, we believe the core tenets of our value proposition are only becoming more relevant. In parallel, we're witnessing and participating in an increasing number of strategic projects across our customer base focused on evaluating, architecting, and building the next phase of data infrastructure to support our customers' AI and application requirements. And it's becoming clear that many alternative approaches and solutions are failing to meet the long-term demands of enterprises looking to scale their infrastructure to support their next-generation application roadmap.

Gregory Henry: And finally, we expect a non-GAAP operating loss in the range of negative $24.5 million to negative $19.5 million.

Operator: With that, Matt and I are happy to take your questions. Operator? Thank you.

Speaker Change: With that, Matt and I are happy to take your questions. Operator.

Operator: And ladies and gentlemen, at this time, we'll conduct our question-and-answer session. If you would like to ask a question, press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue for participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker Change: Thank you.

Speaker Change: and ladies and gentlemen, at this time we'll conduct our question and answer session.

Speaker Change: If you would like to ask a question press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue for participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.

Matthew Cain: Couch-based was deliberately architected to be the foundation for mission-critical applications, delivering the world's most scalable, performant, and flexible modern database. We've intentionally built our platform to combine uncompromising performance with the flexibility of deployment and usage models from cloud to on-premise, and to the edge, and everything in between. And with the introduction of Capella, we do so in an easy-to-use and familiar way while at the same time rapidly enhancing our platform with new services.

Matthew Hedberg: Our first question comes from Matthew Hedberg with RBC. Please state your question. Oh, hey guys, thanks for taking my questions. Maybe I wanted to start with the kind of the unexpected churn and down, so we can talk about something like Greg. You said there wasn't really a commonality to those. I guess I wanted to double-click on that.

Speaker Change: [inaudible]

Speaker Change: Our first question comes from Matthew Headberg with RBC, please stay your question.

Matthew Headberg: Oh, hey, guys, thanks for taking my questions. Maybe I wanted to start with the kind of the unexpected churn and down, so that you talked about. Sometimes, like, Gregory said there wasn't really a commonality to those. I get someone to double put on that and it's your only to think about the magnitude of that on your Q2 net new era.

Gregory Henry: And is there a way to think about the magnitude of that on your Q2 on that new era? Yeah, hey, Matt Greg. Yeah, look, again, like we said, there was just a few of them. One, we knew about one in particular. We got a little surprise at the end where we were in negotiations, and they went a different direction, but there is no commonality. And we call it out because it's a little bit more pronounced, and we see we were very sort of within a pretty tight range on loss and down sell. If I go back to last, you know, three years of being public, that's one of the little bit outside.

Matthew Headberg: Yeah, hey, Matt, it's Greg. Yeah, look, again, like we said, there was just a few of them. One we knew about one in particular we got.

Matthew Cain: As enterprises endeavor to build the next generation of adaptive applications, we are seeing the need to combine the ever-increasing volumes of data from the spirit and traditionally siloed sources, whether it's structured or unstructured data, broad-based internet data, or proprietary enterprise data, with extremely low latency in a highly connected and performant way. This need will only become more urgent. Our strategy continues to be focused on seizing this moment. It's driven by our architectural foundation that supports a broad range of use cases and workloads, complemented by the low TCO of Capella, enabled by our go-to-market motion, and focused on developers, system architects, and other key stakeholders across our large enterprise target market.

Speaker Change: I would call a little surprise at the end where we were in negotiations and...

Speaker Change: They want a different direction.

Speaker Change: but there is no commonality.

Speaker Change: and we call it out because it's a little bit more pronounced and we see we we we're very sort of

Speaker Change: within a pretty tight range of moss and down so if I go back the last three years of being public, that's one of the little bit outside.

Matthew Cain: And we wanted to add a little bit of color, which is why we noted that the gross error ad was one of our best in company history. It just was offset by slightly higher loss and down sell. And we had expected, which is what sort of impacted the net error for the quarter.

Speaker Change: and we wanted to add a little bit of color which is why we noted that.

Speaker Change: The gross ARR ad was one of our best in company history. It just was offset by slightly higher loss and down so then we had expected which is what sort of impacted the net ARR for the quarter. Otherwise we felt pretty good about how the quarter ran.

Matthew Cain: Otherwise, we felt pretty good about how the quarter ran.

Matthew Cain: Brad, that's helped to thank you, and then Matt, I mean, the new customer ads was a real highlight, and it sounded like you had quite a bit of success from the partner ad perspective, some of the partners that you called out. I guess I'm wondering, you guys have had a lot of focus on increasing sales and marketing focus on partners. Could you maybe talk a little about why you're seeing some success there, and how repeatable is that, especially as we look towards what seemingly sounds like a strong second half. Yeah, Matt, certainly 62 net logo ads is a highlight of the quarter, and I'd say it's aligned with several of our strategic initiatives on the go-to-market side paying dividends. You know, as we've talked about, we made particular investments to cover strategic accounts, ensure that we're increasing compelling momentum, and of course increasing the pace of new logo adoption.

Speaker Change: and that's helped the thank you. And then not, I mean, the new customer ads was a real highlight and it sounded like you.

Matthew Cain: Now, turning to product specifics, we are continuously extending our platform with new features and services that are purposely designed to advance the capabilities of developers to build next generation applications. This quarter, we announced the general availability of couch-based mobile with vector search, which makes it possible for businesses to offer similarity and hybrid search in their applications on mobile and at the edge. We also introduced Capella free tier, a perpetual free developer environment, which empowers developers to evaluate and explore products and test new features without time constraints as they develop next-generation production-ready applications on couch-based.

Speaker Change: and quite a bit of success from the partner perspective, some of the way we are.

Speaker Change: from the partners that we call that. I guess I'm wondering, you guys have had a lot of focus on increasing sales and marketing focus on partners. Could you maybe talk a little bit about why you're seeing some success there and how repeatable these data, especially as we report, what's seen in the sounds like a strong second half pipeline for you guys.

Speaker Change: Yeah, Matt, certainly 62, that logo adds as a highlight of the quarter and let's say it's aligned with several of our strategic initiatives on the go-to-market side paying dividends.

Speaker Change: You know, we've talked about we made particular investments to cover strategic accounts. Ensure that we're increasing Capellamo menum and of course.

Matthew Cain: I'd say the partner motion is pervasive across the entirety of our business and extends our reach and relevance with strategic customers. I think partners realize the unique role that we play with our differentiated platform, and our partner types range from, you know, the hyperscalers to different types of service providers and ISVs has and continues to be a really important, really important channel for us. You know, we're excited about this land and think it speaks to the strategic nature of our platform, aligning with strategic partners, unlocking new opportunity with really exciting next generation application. So we fully expect to continue to derive benefits from that, and quite frankly, with the platform that we have in the momentum of the business, I think it's going to only increase over time.

Matthew Cain: Developers now have the access, convenience, and simplicity to learn, develop, and deploy applications on Capella in the production. On top of all of this, we g-aid Capella columnar during the quarter. This powerful innovation empowers our customers to unify operational and analytical workloads on a single platform. Our approach reduces complexity, lowers TCO, and accelerates time to market, positioning our customers with the strong foundation in their AI-driven transformation journeys. As modern applications are increasingly being built on higher performance, semi-structured formats like JSON, application teams, and IT organizations face growing challenges.

Speaker Change: increasing the pace of a new logo adoption.

Speaker Change: I'd say the partner motion is pervasive across the entirety of our business.

Speaker Change: extends our reach in relevance with strategic customers, I think partners.

Speaker Change: Realize the unique role that we play with our differentiated platform.

Speaker Change: and our partner types range from, you know, the hyperscalers to different types of service providers and ISVs has and continues to be a really important.

Speaker Change: really important channel for us.

Speaker Change: We're excited about this land and think it speaks to the strategic nature of our platform, aligning with strategic partners.

Speaker Change: Unlocking new opportunity with really exciting next generation application. So we fully expect to continue to drive benefits from that and quite frankly, with the platform that we have in the momentum of the business, I think it's going to only increase over time.

Matthew Cain: The flow of real-time data at scale is severely constrained by the architectural limitations of relational systems. This introduces latency, impacts productivity, and performance due to rigid and complicated ETL operations, and impedes real-time operational rightbacks, disrupting critical tasks in today's data-driven environments. Overcoming these obstacles is crucial for organizations aiming to harness the full potential of their data in real-time. Couchbase is intentionally architected to solve these challenges through its innovative columnar data format, which eliminates the inefficiencies of legacy, rigid and outdated systems.

Matthew Hedberg: Thanks a lot, guys.

Matthew Cain: Thanks, Matt.

Cash Rangan: Our next question comes from Cash Rangan with Coleman Sachs. Please state your question. Hi, thank you very much. Matt, you talked about the columnar database. I'm curious to get you an expanded thoughts on it. I always thought, Jenny, I was more on the unstructured side of things. Obviously, databases have a huge role to play with the structured data. But can you can you expand? Is this something that you're sharing from your customers? Are you proactively doing the cylinder database? Because I still want to understand how the clever database fits with the broader GNI enablement of your customization.

Speaker Change: Thanks, vloggers.

Speaker Change: Thanks for having me.

Speaker Change: Our next question comes from cash, Rangan, with Coleman Sachs, please stay a question.

Cash Rangan: Hi, thank you very much, Chef. Matthew talked about the columnar database, some curious to get you the expanded thoughts on it. I always thought, Jenny, I was more on the unstructured sight of things.

Speaker Change: Obviously Database has a huge role to play with the structured data, but can you expand, is this something that you're sharing from your customers or you're proactively doing this criminal?

Matthew Cain: Our approach paved the way for AI-powered applications to seamlessly integrate operational data with real time analytics, enabling our customers to deliver more agile, personalized and cost-effective solutions. We believe this strategy aligns strong strongly with the application agendas of enterprises, where the demand for real time AI-driven insights is rapidly accelerating. The Pelocollumnar is a transformative achievement for us, and I am thrilled to share the Q2 soft fast adoption and positive feedback from early users across various industries.

Speaker Change: and I would like to say that it's a good idea to do this, because I still want to understand how the club nerd database fits with the broader GNAI enablement on your customers. And then, one for you, Bob.

Cash Rangan: One for you, break the, can you talk a little bit about the Q4 upcoming net new error growth that you expect within the customer base? What exactly is driving that? Is that from Capella or from the core platform? Thank you so much.

Speaker Change: is the city's talk a little bit about the few four upcoming net new ARR growth that you expect within the customer base, what exactly is driving that is that from Capella, or from the more platform. Thank you so much.

Matthew Cain: Cash, let me talk about the columnar database. Let me start first with kind of our very high level view on our role to play in AI. We have an opportunity to be the single source of truth to store index and search structured, semi-structured, and unstructured data. You know, the highlights we talked about in the quarter are advancing the platform for developer reach, developer productivity, and the columnar announcement is a big part of enabling that AI strategy. If you think about a JSON application, the capability surrounding that JSON application from an ETL and analytics perspective are relational by definition.

Ashley: Ashley, let me talk about the column or data base, but let me start first with kind of art.

Speaker Change: Very high level view on our role to play in AI.

Speaker Change: We have an opportunity to be the single source of truth, to store index and search, structure and semi-structure and unstructured data.

Matthew Cain: This strong market response underscores the significant value our customers see in integrating advanced analytics directly with our operational environment. And by combining Capella columnar with advanced vector search capabilities with the unified cloud database platform, we enable enterprises to further reduce costs, simplify operations, and put both the operational and analytical power directly in the hands of developers to create reliable adaptive applications that scale effortlessly from cloud to edge. What gives us confidence in our strategy is that we continue to see it resonate with our growing customer base.

Speaker Change: You know, the highlights we talked about in the corridor are advancing the platform for developer reach, developer productivity and the columnary announcement is a big part of...

Speaker Change: Enabling that AI strategy. If you think about a JSON application, the capability surrounding that JSON application from an ETL and analytics perspective are relational by definition.

Matthew Cain: We have essentially shattered that barrier and built a native JSON analytics set to complement what we do on the operational side. This allows us to have zero ETL for JSON ingest multiple data sources, open up conversational analytics for developers, and critically important importantly provide operational right back for the application set. And so columnar is the advancement that opens up these capabilities and data ingest, but it's really an extension of the platform that is very much in service of our AI strategy to be that single source of truth and bring AI technology into applications and really embed those capabilities to take application attributes to the next level.

Speaker Change: We have essentially shattered that barrier and built a native JSON analytics set to complement what we do on the operational side.

Speaker Change: This allows us to have zero ETL for JSON in just multiple data sources, open up conversational analytics for developers.

Matthew Cain: A new Capella customer in Q2 is a financial service company that chose Capella to power their client reporting service in its data hub. We were selected because of our ability to enable greater transparency and reporting precision to its commercial clients, including providing inner day reporting and full transaction detail availability. Another new Capella logo this quarter was an aviation and aerospace component manufacturing company that provides in slight entertainment and communication solutions to airlines.

Speaker Change: and critically important, importantly, provide operational right back for the application set.

Speaker Change: and so columnar is the advancement that opens up these capabilities and data ingest. But it's really an extension of the platform that is very much in the service of...

Speaker Change: or AI strategy to be that single source of truth and bring AI technology into applications and really embed those capabilities to take.

Matthew Cain: So exceedingly strategic for the pursuit of us as a data platform in the AI world that we're living in, and for those reasons we're getting tremendous customer feedback and already uptake since GA with the feature alongside the rest of the platform.

Speaker Change: Application Attributes to the next level. So exceedingly strategic for...

Matthew Cain: Requiring a database that would provide performance at scale with the flexibility to power content management of its business critical in flight entertainment system, this customer selected couch base because of the compelling mobile offering and edge capabilities. Turning to expansion, this quarter, a global leader in unified retail commerce solutions, aptos expanded its investment in Capella to continue supporting its cloud native point of sale system, aptos one aptos originally selected couch base for its mobile and offline first capabilities and was able to reduce infrastructure costs and improve operational efficiencies by migrating the Capella.

Speaker Change: the pursuit of us as a data platform and in the AI world that we're living in, and for those reasons we're getting tremendous customer feedback and already uptake since G.A. with the feature alongside the rest of the platform.

Cash Rangan: Awesome, thank you.

Gregory Henry: Kasthuri, Kasthuri on your Q4 ARR question, so obviously this is the first time we've guided to Q3, and are you done giving the full year guidance? You have been applied Q4 guide if you will. And what we want to call out is we do these large strategic deals, and we've been doing these for years now when we build in growth over time within a contract. So, for example, if you recall, like last Q4, you know, we had a big, nice RPO jump because we did a couple of very large deals; those were multi-year deals. So this is, in some cases, the second or third year, taking in and based on our definition of ARR where we look at what's at the end of the quarter plus 12 months forward.

Speaker Change: Thank you. I can't.

Speaker Change: Cash on your Q4 ARR question. So, obviously this is the first time we've guided to Q3 and you've done giving the full year guidance you have been implied. Q4 guide if you will and what we want to call out is we do these large strategic deals and we've been doing these for years now when we build in growth over time within a contract.

Speaker Change: So, for example, if you recall, like last Q4

Matthew Cain: And it's continued to invest in Capella for easier deployment of new products and features while reducing database administration. Another Capella expansion came from an automobile training company Toyota Astromotor. This customer is leveraging Capella to deliver an application to improve customer experience end to end and decided to expand its investment in Capella because of its performance advantage. This comprehensive mobile application will serve all of Toyota's clients needs. The Global Leader in the convenience foods and beverage space also expanded their Couchbase investment this quarter.

Speaker Change: You know we had a big nice RPO jump because we did a couple of very large deals. Those were multi-year deals. So this is, in some cases, the second or third year taking in and based on our, our definition of ARR, where we look at what's at the end of the quarter plus 12 months forward.

Gregory Henry: Some of that will now get it will is getting pulled in to Q4 and resides there. We want to give some context that we have this from time to time, some quarter of this year, some quarter of this the modest amount, Q4 in this particular case is a bit outside.

Speaker Change: Some of that will now get, well, is getting pulled into Q4 and resides there and we want to give some context that we have this from time to time, some quarter of this year or else some quarter that's the modest amount.

Gregory Henry: We want to call that out, given that now that you see the implied guidance of Q4 to give some confidence that we have that we can deliver the second half and particularly Q4 because there is a healthy amount of ARR that's already contracted in Q4 specifically.

Speaker Change: Q4, in this particular case, is a bit outside, we want to call it out.

Speaker Change: given that now that you see the implied guidance of Q4 to give some confidence it.

Matthew Cain: Initially needing a database solution with offline available functionality for its sales application used by field representatives, this customer again expanded with Couchbase because of our databases superior offline first capabilities, flexibility and ability to process high number of transactions. We also had an important new relationship with a large ISB which contributed a significant number of new logos in the quarter. Partner led sales continues to be a key component of our go-to-market strategy and ISBs can be a force multiplier to our existing motion and reinforces the value proposition that we bring to customers.

Speaker Change: [inaudible]

Speaker Change: [inaudible]

Cash Rangan: Thank you.

Brent Braselin: Our next question comes from Brent Braseland with Piper Sandler. Please do your question. Thank you. Good afternoon. Matt, I wanted to double-click into Capella, Netnu ARR; they're more than doubled sequentially, high as you've ever seen. Could you just walk through what drove that, obviously? It sounds like there were a lot of new customers; was there also a contribution from some migrations of existing customers? Walk us through what drove the outside momentum, just given it was so strong this quarter, and I have a quick follow-up.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Brent Braceland with Piper Sandler, please your question.

Speaker Change: Thank you, Good afternoon. Matt, I wanted to double-click into Capella. Net-Doui RR, they're more than doubled sequentially, highest you've ever seen.

Brent Braceland: Could you just walk through what drove that, obviously it sounds like there were a lot of new customers, was there also a contribution from some migrations of existing customers, just walk us through

Matthew Cain: Finally, I'm excited to welcome Josh Harbor as our new chief marketing officer. Over his 20 years in marketing roles at both private and public software and technology companies, he has demonstrated a strong track record of accelerating growth and achieving strategic outcomes. Josh's experience will be instrumental in leading all aspects of our marketing strategy and execution. We're thrilled to have Josh as part of our world class team.

Speaker Change: would drove the outside momentum, just given it was so strong this quarter and I have a quick follow-up.

Matthew Cain: Yeah, look, we have high expectations for Capella, and I think we've had a quarter where those are proving out, and I'd say it's balanced across all aspects that you talked about. We increased customer count, which is now up to 31%. We increased ARR mix, which is now 13.5%. That's a combination of Netnu applications as well as migrations. We also talked about the single largest Capella land that we've ever had. And so Capella continues to be a significant growth vector for us. Customers value the service; developers want to focus on building great applications and uploading a lot of data management to Couchbase, and we're seeing that play out across accounts of all sizes, quite frankly, and all geographies across the world.

Speaker Change: Yeah, look, we have high expectations for Capelle, and I think we've had a quarter where those, you know, are proving out. And I'd say it's balance across all aspects that you talked about.

Speaker Change: We increased customer count, which is now up to 31%.

Matthew Cain: In conclusion, I'm pleased with our teams have responded and executed in the second quarter. We made progress across our strategic priorities, delivered strong new customer growth, meaningfully increased our Capella mix, successfully launched Capella columnar and continue to drive efficiency across our model. Our customers and prospects are focused on building the next generation of adaptive applications while addressing the growing data challenges of an increasingly AI-powered world. Our foundation rests upon a carefully architected platform, purpose-built to enable these mission-critical applications, and I'm honored that CouchBase is serving as a strategic partner helping customers navigate this journey.

Speaker Change: we increase ARM mix, which is now 13.5%. That's a combination of net new applications as well as migrations. We also talked about the single largest Capella land that we've ever had.

Speaker Change: and so Capella continues to be a significant growth factor for us.

Speaker Change: Customers value the service, developers want to focus on building great applications and uploading a lot of data management to couch-based and we're seeing that play out across accounts of all sizes quite frankly and all geographies.

Matthew Cain: We anticipate that this is going to continue. Some of those levers are going to be dependent on pace of migrations, but over the normalizing for time, we expect this to be a significant lever of growth for us on a go forward basis and are seeing nothing but positive leaning indicators across all aspects of how we track Capella.

Speaker Change: across the world. So we anticipate that this is going to continue. Some of those levers are going to be dependent on pace of migrations, but you know, over the...

Matthew Cain: We are not fully satisfied with our net new AIR performance in the first half of the year. That said, we're making rapid operational progress across the business, inclusive of several key strategic accounts where we are emerging as a strategic and long-term critical platform provider. This robust pipeline of exciting opportunities gives us confidence in our ability to drive substantial winds and expansions going forward. This dynamic, taking with other important levers in the business, reinforce our confidence in delivering the year.

Speaker Change: kind of normalizing for time, we expect this to be a significant lever of growth for us on a go-forward basis and you know, are seeing nothing but positive leaning indicators across all aspects of how we track Capella.

Brent Braselin: And then Greg, as you just think about turning down, so can you just remind us what the gross retention of the business has been over the last, let's say, two, three years and then maybe walk through the logic of what you're baking in on a go forward basis. Do you think there might be a slightly more elevated turn assumption you're baking into the back half of the year? Any additional color there would be helpful. Thanks.

Speaker Change: and then Greg, as you just think about

Greg Henry: Turn it down, so can you just remind us what the gross retention of the business has been over the last.

Greg Henry: Let's say two, three years and then maybe

Greg Henry: Walk through the logic of what you're baking in on a go-forward basis. Do you think there might be a slightly more elevated turn assumption you're baking into the back half of the year? Any additional color there would be helpful, thanks.

Matthew Cain: We will work tirelessly to support our customers and acquire new ones, enhance and extend our technology leadership, deliver new capabilities in services, and drive increased Capella adoption, and we'll do so in a more efficient manner and with a dedicated focus on a rule of 40 trajectory. As I have said many times, at CouchBase, we attack hard problems driven by customer outcomes.

Gregory Henry: Yeah, hey Brent, so yeah, we don't really disclose the growth retention. I can tell you with a healthy enterprise-level growth retention that we've experienced ever since we've been a public company. And we are not anticipating there be additional elevated levels of loss and downsell in the second half. We think it normalizes. We think you too is an anomalous obviously with what's going on the macro we're watching closely, but you know we've gone through and looked very closely at what's up for renewal in the second half and evaluated that and we do not see where there's going to be again anomalous loss and downsell and should have get back to the healthy, you know, growth retention renewal rate that we've been seeing historically. Got it helpful color.

Greg Henry: Yeah, hey Brent. So yeah, we don't really disclose the girl's retention. I can tell you with a healthy enterprise level growth retention that we've experienced.

Greg Henry: Ever since we've been a public company.

Speaker Change: and we are not anticipating the additional elevated levels of loss and downsell in the second half we think it normalizes.

Gregory Henry: With that, I'll now hand the call over to Greg to discuss our results in more detail. Greg? Thank you. Thanks, Matt, and thanks everyone for joining us. I'm pleased with the progress we made in the quarter, including our top and bottom line performance, new business generation, logo ads, and strong execution across all aspects of our business. Despite ongoing macroeconomic headwinds, we continue to see strong demand for our platform and remain confident in our trajectory and ability to achieve our 2025 goals and the objectives we laid out at our analyst day.

Speaker Change: We thank you to an amulet.

Speaker Change: obviously with what's going on the macro we're watching closely but

Speaker Change: You know, we've gone through and looked very closely at what's up for renewal in the second half in a value of that and we do not see where there's going to be, again, anomalous loss and down so and should have, get back to the healthy, you know, growth retention renewal rate that we've been seeing historically.

Brent Braselin: Thank you.

Brent Braselin: Thanks, Brent.

Speaker Change: Got it, help me cover, thank you

Mike Seacos: Your next question comes from Mike Seacos with Needham and Company. Please say your question. Hey guys, thanks for taking the questions here. I was just hoping to see if we could get a little bit more color and overall circling around the turn and downsell, but is there any way you can kind of discuss where these customers potentially newer cohorts into the Couchbase customer base or have they been around for a while? And really the reason for the question is if I just look at the momentum that you guys have from a product velocity and innovation standpoint, whether it's the GA of mobile with vector search or you guys just recently announced Column or now.

Brett: Thanks, Brett.

Mike Seaco's: Your next question comes from Mike Seaco's with Needham and Company, please stay your question.

Gregory Henry: I'll now walk you through our second quarter of financial results in more detail before providing our guidance for the third quarter and fiscal year. Total ARR was $214 million, representing growth of 18% year over year and 3% sequentially at the midpoint of our guidance range. Foreign currency fluctuations added approximately a one point headwind to our ARR growth rate. We ended the second quarter with $28.9 million of cappella ARR up 20% sequentially and representing 13.5% of our total ARR up to points from 11.5% last quarter.

Mike Seaco's: Hey, guys. Thanks for taking the questions here. I was just hoping to see if we could get a little bit more color and we're all circling around the churn and down cell. But is there any way you can...

Speaker Change: kind of discussed where these customers potentially knew her cohorts into the catch-based customer base or have they been around for a while and really...

Speaker Change: The reason for the question is, if I just look at the momentum that you guys have from a product velocity and innovation standpoint, whether it's the GA of mobile with vector search, you guys just recently announced column nor now, it's just a bit...

Mike Seacos: It's just a bit striking or counterintuitive to hear about this turning downsell and just want to make sure that we're thinking about this appropriately as far as this is an anomaly here in Q2.

Gregory Henry: As Matt mentioned, while Q2 was among our strongest quarters from a new business perspective, we experienced unexpected loss and downsell from a few large customers which impacted our ending ARR balance. While there is no commonality to any of these, we note that one of the losses was due to ceasing of operations following its acquisition by a larger entity. I'll discuss our outlook in more detail in a moment, but we remained confident our ability to retain and expand our customer base and more specifically our largest customers.

Speaker Change: Striking or counterintuitive to hear about this turning down cell and just want to make sure that we're thinking about this appropriate as far as this is an anomaly hearing cue-tool.

Matthew Cain: Hey Mike, this is Matt. I appreciate you calling this out. Let's take our time with this. Any time we enter a fiscal period, a significant driver for the financial year is our renewal base. And we study the shape of the renewal base and the health of the renewal base. Shape obviously being winter accounts up for renewal and the health renewal base really looking at a specific account, how strategic are we with our deployment with that customer, how many services are they leveraging with respect to the database, how many applications do we have deployed. And as we've talked about coming into the year, this year's renewal base is disproportionately allocated to the second half.

Speaker Change: Hey Mike, this is Matt. I appreciate you calling this out. Let's take our time with this.

Speaker Change: any time we enter a fiscal period.

Speaker Change: A significant driver for the financial year is our renewal base.

Speaker Change: and we study the shape of the renewal base and the health of the renewal base.

Gregory Henry: Turning to revenue, second quarter total revenue was $51.6 million, up 20% year over year and 1% from last quarter. Second quarter software revenue was $49.3 million, also up 20% year over year and 1% sequentially. The remaining $2.3 million came from professional services revenue up 5% year over year and flat sequentially. Our second quarter ARR per customer was $246,000 down from Q2 2024 and down from $257,000 in the first quarter, largely driven by our strong new logo additions in the quarter.

Speaker Change: shape obviously being winner accounts up for renewal.

Speaker Change: and the Health Renewal Base really looking at a specific account how strategic are we with our deployment, with that customer, how many services are they leveraging with respect to the database, how many applications do we have deployed?

Speaker Change: and as we've talked about coming into the year, this year's renewal base is disproportionately allocated to the second half.

Matthew Cain: What is proving also to be true is that the relative healthy upside is also seemingly sitting in the back half with what we were talking about these large strategic accounts. And just to give some perspective on large strategic accounts, we've often referred to our business as a land and explode model. These are multi-year very strategic accounts that have the potential to be up to eight-figure AR that, at the point of transaction, deliver disproportionate AR growth. Offsetting that is kind of the natural part of our business, which is, you know, loss and downsell. What we called out in the second quarter is as normal kind of course of business, we can predict the certain amount of loss and downsell, but there were really a couple accounts that delivered more meaningful as in outside the norm, downsell.

Speaker Change: What is proving also to be true is that the relative healthy upside is also seemingly sitting in the back half with what we were talking about these large strategic accounts.

Gregory Henry: As a reminder, ARR per customer growth could moderate or decline as our cappella mix continues to grow in contribution. Our dollar-based net retention rate or NRR continues to exceed 115%. We exited the quarter with 869 customers, an increase of 62 net new customers from last quarter. Our cappella customer logo count grew by 37 in the quarter. I continue to be encouraged by our solid retention metrics, strong cappella ARR growth and ability to consistently expand new logos.

Speaker Change: and just to give some perspective on large strategic accounts.

Speaker Change: We've often referred to our business as a land and explode model. These are multi-year, very strategic accounts.

Speaker Change: that had the potential to be up to eight-figure ARR that at the point of transaction, deliver disproportionate ARR growth.

Gregory Henry: In discussing the remainder of the income statement, please note that unless otherwise stated, all references to expenses, results of operations and share count are on a non-gap basis. We remain focused on efficiently growing our business. I'm pleased with our efforts on this front, once again, resulting in outperformance against our operating loss outlook. Our second quarter of gross margin was 88.3%. This compares to 87.2% from Q2 of last year and 89.9% last quarter, benefiting from sustained enterprise growth profit margin strength and lower services revenue mix offset by growing cappella mix, which inherently carries a lower gross margin.

Speaker Change: off setting that is kind of the natural part of our business which is, you know, lost and down so.

Speaker Change: What we call out in the second quarter is...

Speaker Change: as normal kind of course of business.

Speaker Change: We can predict the certain amount of loss and downsell that there were...

Speaker Change: really a couple accounts that delivered more meaningful as in outside the norm, down felt. One of them that was an acquisition where they shut down the business into the seven figures that we were prepared for, and the one that came a little late.

Matthew Cain: One of them that was, you know, an acquisition where they shut down the business, you know, into the seven figures that we were prepared for and the one that came a little late. What we didn't have in the quarter is one of those strategic accounts transact that would have completely offset that. Now, as we look at the, you know, kind of makeup of the year, we can't lose sight of the strategic accounts that we're highlighting and the opportunity that has, which reinforces our confidence for the year. And as I look at kind of the fiscal year and the entirety, we look at the predictability of our enterprise business renewal rates, expansion rates.

Speaker Change: What we didn't have in the quarter is one of those strategic accounts transact that would have completely offset that.

Gregory Henry: Johnson. Exercising expense discipline and finding opportunities for cost efficiencies continues to be a priority. Second quarter, sales and marketing expenses were $29.6 million or 57% of revenue. This is down from 65% of revenue in Q2 of fiscal 2024. Like last quarter, increasing sales and marketing efficiency was a priority of ours in Q2. Research and development expenses were $13 million or 25% of revenue down from 29% from Q2 of last year. General administrative expenses for $7.1 million or 14% of revenue compared to 15% of revenue a year ago.

Speaker Change: Now, as we look at the, you know, kind of make up of the year.

Speaker Change: We can't lose sight of the strategic accounts that we're highlighting.

Speaker Change: and the opportunity that has which reinforces our confidence for the year. And as I look at kind of the fiscal year in the entirety, we look at the predictability of our enterprise business, renewal rates, expansion rates.

Matthew Cain: And we fully expect that to continue. You know, the upside is often derived with how we execute on big accounts, and the health of the pipeline in the back half is, quite frankly, one of the best we've ever seen in terms of the number of accounts, the size of expansion that can come, and the geographic distribution. Again, all part of our strategic investments. What isn't reflected in the quarter is the progression that we've made with those strategic accounts that, again, further underpins our confidence for the year. So loss and downsell, we believe isolated, more one offs.

Speaker Change: and we fully expect that to continue.

Speaker Change: You know the upside is often derived with how we execute on big accounts and the health of the pipeline in the back half is quite frankly one of the best we've ever seen in terms of the number of accounts.

Speaker Change: the size of expansion that can come.

Gregory Henry: Operating loss for the second quarter was $4.1 million or a negative 8% operating margin. This compares to a loss of $9.2 million or a negative 21% operating margin in Q2 of last year. Net loss attributable to common stockholders was $2.9 million or negative 6 cents per share. Turning to the balance sheet, we entered the second quarter with $156.1 million in cash, cash equivalents, and short term investments. We continue to remain well capitalized for executing against our long-term strategy.

Speaker Change: and the geographic distribution, again, all part of our strategic investments.

Lawson Downsell: What isn't reflected in the quarter is the progression that we've made with those strategic accounts that, again, further underpins our confidence for the year. So, Lawson Downsell, we believe, isolated, more one-offs.

Matthew Cain: The map converges over time, offset by those strategic opportunities, and we have very good visibility in the second half, which kind of completes the full picture.

Lawson Downsell: the math converges over time, offset by those strategic opportunities and we have very good visibility in the second half, which kind of completes the full picture.

Mike Seacos: Thank you very much for the thorough answer there. I definitely appreciate it, and I guess for the follow-up, if I could just tack on first, great to hear the reiteration on the view that next year will be free cashful positive. Just wanted to double check on the op-backs, the expense discipline shown in Q2 really was across the board in every line item there, and I'm trying to think you guys obviously have these go-to-market initiatives, whether it's tapping more heavily into partners, re-engaging with them while offering incentives. So, over the remainder of the year, I guess, can you just give us a reminder, how should we think about the partners continuing to beat the drum on behalf of Couchbase? Where does the, I guess, what is the port of contribution to deals today versus where we expect us to scale to?

Gregory Henry: A remaining performance obligations or RPO was $215.8 million at the end of Q2 up 27% over year. We expect to recognize approximately 63% or $136.2 million of total RPO is revenue over the next 12 months representing growth of 19% over year. As a reminder, we experienced fluctuations in our RPO balances due to a host of factors, including renewal timing, as well as changes in average contracturation. Operating cash flow for the second quarter was negative $4.9 million.

Speaker Change: Great, thank you very much for the thorough answer there Matt, definitely appreciate it. And I guess for the follow-up, if I could just tack on first, great to hear the reiteration on the view that next year will be free cashful positive. Just wanted to double check on the on the op-ax.

Speaker Change: the expenses of plain shone Q2, really was across the board, it every line item there. And I'm trying to think you guys obviously have these go-to-market initiatives, whether it's tapping more heavily into partners, engaging with them all free incentives.

Gregory Henry: Free cash flow was negative $5.9 million or a negative 11.5% free cash flow margin. We remain committed to being free cash flow positive for fiscal 2026. Now, I will provide our guidance for Q3 and the full year of fiscal 2025. As Matt discussed, we saw strong momentum across our business in Q2 and our pleas with the execution of our teams. We continue to expect Capella to be an important growth driver for our business, complemented by investments enhancing our product capabilities, partner ecosystem, and go to market motion.

Speaker Change: and so...

Speaker Change: Over the remainder of the year, I guess, can you just give us a reminder, how should we think about the porters continuing to beat the drum on behalf of couch base? Where does the, I guess, what is the porters contribution to deals today versus where we expect this to scale to?

Matthew Cain: Look, Mike, I think we called out the partner activity on the ISV because of the outsized new logo addition, but I'd say partners has been a persistent part of our business and we've scaled investments there to, you know, align with, you know, other investments as we've grown the company. It has been and continues to be an important lever for us, but it's not as if we haven't already invested in an adequate level or are on an appropriate slope to drive the growth that we're committed to. Look, I think, you know, a lot of this is about getting more efficiency.

Speaker Change: Look, my, I think we called out the partner activity on the ISB because of the outside new logo edition. But I'd say partners has been a persistent part of our business and we've scaled investments there too.

Gregory Henry: As we have previously discussed, due to our customer base of large enterprises, the mission critical nature of many of the applications we support and the sensitivities that are renewals, upsells, and Capella migrations have on our reporting metrics, including ARR, quarterly timing is always an important element of our business and sometimes difficult to predict. As such, given the composition of our renewal pool and pipeline of large opportunities, we continue to expect our net new ARR growth to be disproportionately weighted towards the back half of the year and in particular Q4.

Speaker Change: you know, aligned with, you know, other investments as we've grown the company. It has been and continues to be an important lever for us.

Speaker Change: but it's not as if we haven't already invested in an adequate level.

Speaker Change: or are on an appropriate slope to drive the growth that we're committed to.

Matthew Cain: We talked a lot about having built a great foundation and getting to the Capella inflection, which is going to lead the leverage. What I would point out is our ability to get more out of our spend. Our innovation team is firing at a level that, quite frankly, they never have with Capella as a platform. Our ability to do that more efficiently and extract appropriate amount of value from the market with that offering is going up. Go to market teams increase in their sophistication on finding new customer prospects and efficiently, you know, getting them through the funnel.

Speaker Change: Look, I think.

Speaker Change: You know, a lot of this is about getting more efficiency. We talked a lot about having built a great foundation and getting to the compelling flexion, which is going to lead the leverage. What I would point out is our ability to get more out of our spend.

Gregory Henry: In addition, I'd like to mention a specific ARR dynamic that is having a more pronounced impact on our outlook relative to prior years. On occasion, given the strategic nature of our customer engagements, our contracted deals can include future increasing ARR, which can contribute to our ARR visibility. Typically in a quarter we have any pre-contracted ARR is relatively modest. However, we currently have it substantially larger than normal amount of contracted ARR with start dates in Q4, which is contributing both to our strong second half visibility and greater than normal weighting of net new ARR discussed Finally, we remain mindful of the macroeconomic headwinds and continue to carefully monitor their outlook on our business.

Speaker Change: are innovation team is firing at a level that quite frankly they never have.

Speaker Change: with Capella's a platform or ability to do that more efficiently and extract appropriate amount of value from the market with that offering is going up, go to market teams, increase in their sophistication on finding new customer prospects and efficiently.

Matthew Cain: So we remain committed on kind of rule of 40 and free cash flow progress, and we're able to do that by investing in, quite frankly, a more efficient way as our platform matures and market dynamics remain extremely attractive for us. So I'd say all of those things factor into, you know, the financial commitments and partners being one part of that.

Speaker Change: You know, getting them through the funnel.

Speaker Change: So we remain committed on kind of rule of 40 and free cash flow progress and we're able to do that by investing in quite frankly a more efficient way as

Speaker Change: are platform maturers and market dynamics remain extremely attractive for. So, I'd say all of those things factor in to the financial commitments and partners being one part of that.

Gregory Henry: As such, our outlook assumes a consistent degree of conservatism to account for these variables as well as lack of visibility into how the macroeconomic environment may impact upsell and migration timing as well as consumption trends for our emerging as a service offering. With these factors in mind, for the third quarter of fiscal 2025, we expect total revenue in the range of food 250.3 million to 51.1 million dollars, or year-over-year growth of 11% at the midpoint.

Mike Seacos: Great.

Mike Seacos: Thank you very much, guys.

Senji Singh: Our next question comes from Senji Singh with Morgan Stanley. Please stay a question. Great. Thank you. You have deal to know for Senji.

Speaker Change: Thank you very much, guys.

Speaker Change #100: Our next question comes from San Giet Singh with Morgan Stanley, please stay a question.

Senji Singh: Maybe to start with one higher level of question. I mean, you obviously have been spoken to some of the downtown churn dynamics within your base. You've also spoken about the opportunity of buying for that single source of truth in AI. You're obviously not the only company buying for that, and clearly the hyperscalers are playing a big role in his new way for the AI applications. So could you just sort of contextualize what you're seeing in your partnership, but also in your competition with the hyperscalers on any meaningful shifts into competitive intensity or win rates that you would call out.

Speaker Change #101: Great, thank you for the tune on Tristan Gith.

Speaker Change #102: Maybe you'll start with it.

Speaker Change #103: One-high-level question, I mean, you obviously have links spoken to some of the downson trend dynamics within your base. You've also spoken about...

Gregory Henry: We anticipate ARR in the range of 218.5 million to 221.5 million dollars, representing 17% growth year-over-year at the midpoint. We expect non-gap operating loss in the range of negative 5.5 million to negative 4.5 million dollars. For the full year of fiscal 2025, we are raising our revenue outlook while maintaining our ARR guidance and decreasing our operating loss guidance, or encouraged by the pipeline opportunities in overall business momentum heading into the second half of the year.

Speaker Change #104: The opportunity of buying for that thing also is true in the AI.

Speaker Change #105: You obviously not the only company buying for that and sell it at high-piscales or for any big row is new way for the AI applications

Speaker Change #106: So could you just sort of contextualize what you're seeing in your partnership, but also in your competition with the hyperscalers or any meaningful shifts in terms of your competitive intensity or win rates?

Gregory Henry: And then the second question, sort of on your buildings and pre-catchable, you spoke to the slip yields from Q1 closing. Yet it seems like your buildings in the pre-catchable is slightly below where the street expected to be. Anything that you can kind of highlight on what drove that as well.

Speaker Change #107: and you would call out, and then...

Speaker Change #108: The second question sort of on your buildings and pre-casual, you spoke to the split yields from two one closing. Yeah, it seems like your buildings and your pre-casuals slightly below where the street expected to be anything that you can kind of highlight on what drove that as well.

Gregory Henry: As such, we remain confident our ability to achieve our full year ARR guidance. We now expect total revenue in the range of 205.1 million to 209.1 million dollars, or year-over-year growth of 15% at the midpoint. We continue to expect ARR in the range of 235.5 million to 240.5 million dollars, representing 17% growth at the midpoint. And finally, we expect a non-gap operating loss in the range of negative 24.5 million to negative 19.5 million dollars.

Matthew Cain: I'll start, and then I'll turn it over to Greg. Look at a very high level, we are here to build a database for enterprise applications, which increasingly are going to be driven and enhanced with AI. And if we look at our core architecture and what we've been building for the future, for this moment and the one that we're looking at. We are going to experience the core attributes that make us great: scale, performance, flexibility, cloud to edge, architecture, native JSON, SQL compatibility; you know, have never been more relevant. And if I step back and put myself in the shoes of our enterprise customers and think about what they're going to need from a data platform and define the attributes, you'd be hard pressed, in my opinion.

Speaker Change #109: I'll start and then I'll turn it over to Greg, look at at a very high level.

Speaker Change #110: We are here to build a database for enterprise applications.

Speaker Change #111: which increasingly are going to be driven in enhanced with AI. And if we look at our...

Unknown Executive: With that, Matt and I are happy to take your questions. Operator? Thank you.

Speaker Change #112: Core architecture and what we've been building for the future for this moment and the one that we are going to experience.

Unknown Executive: And ladies and gentlemen, at this time, we'll conduct our question and answer session. If you would like to ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue for participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.

Greg Henry: The core attributes that make us great, scale, performance, flexibility, cloud-to-edge architecture, native JSON, sequel compatibility, you know.

Greg Henry: had never been more relevant. And if I step back and put myself in the shoes of our enterprise customers and think about what they're going to need from a data platform and to find the attributes you'd be hard pressed in my opinion to find a better starting point than then couch base. And our teams.

Matthew Cain: To find a better starting point than Couchbase. And our teams wake up and ensure that we're building the next generation of capabilities and services to enable our enterprise customers to be successful with these enterprise applications. If we're doing that, we're going to have to solve problems in a unique and differentiated way relative to other solutions that are out there, which include native services from the cloud providers. And I'd say that's a dynamic that we've been dealing with and will deal with for some time, but we pride ourselves at solving customer problems and doing it in a compelling and differentiated way that includes hybrid cloud edge deployments, you know, some core capabilities that the hyperscalers don't have in their offering.

Matthew Hedberg: Our first question comes from Matthew Hedberg with RBC. Please state your question. Oh, hey guys, thanks for taking my questions. Maybe I wanted to start with the kind of the unexpected churn and down, so we just talked about something like Greg, you said there wasn't really a commonality to those. I guess I wanted to double-click on that. And is there anything about the magnitude of that on your Q2 net new ARR?

Greg Henry: Wake up and ensure that we're building the next generation of capabilities and services to enable our enterprise customers to be successful with these enterprise applications.

Greg Henry: If we're doing that, we're going to have to solve problems in a unique and differentiated way relative to other solutions that are out there, which include native services from the cloud providers. And I'd say that's a dynamic that we've been dealing with and will deal with.

Matthew Hedberg: Yeah, hey Matt Greg. Yeah, look, again, like we said, there was just a few of them. One, we knew about one in particular we got a little surprise at the end where we were in negotiations and they won a different direction, but there is no commonality. And we call it out because it's a little bit more pronounced and we see we were very sort of within a pretty tight range on loss and down sell.

Greg Henry: for some time, but we pride ourselves at solving customer problems and doing it in a compelling and differentiated way. It includes hybrid cloud edge deployments, you know, some core capabilities that the hyper scalers don't have in their offering.

Matthew Cain: At the same time, we really value those relationships as we go to market and we deploy Capella in their cloud and we partner with, you know, other services within their spec. And so I'd say, this is an ongoing dynamic on the margin.

Greg Henry: at the same time.

Greg Henry: We really valued those relationships.

Matthew Hedberg: If I go back to last three years of being public, that's one of the little bit outside. And we wanted to add a little bit of color, which is why we noted that the gross ARR ad was one of our best in company history. It just was offset by slightly higher loss and down sell and we had expected, which is what sort of impacted the net ARR for the quarter.

Greg Henry: as we go to market and we deploy Capella in their cloud and we partner with, you know, other services within their spack. And so I'd say this is an ongoing dynamic on the margin, if I were to comment on kind of the co-optician dynamic, I would say.

Matthew Cain: If I were to comment on kind of the co-op petition dynamic, I would say partnership in momentum and development, particularly in emerging geographies, is very positive. And I'd say the competitive dynamics on a platform level remains unchanged. And that's a competitive dynamic that we take on every day. So it's a complicated relationship, as you can appreciate just based on their scale, but it's one that we lean into for the reasons that I mentioned.

Greg Henry: Partnership in momentum and development, particularly in emerging geographies, is very positive, and I'd say the competitive dynamics on a platform level remains.

Matthew Cain: Otherwise, we felt pretty good about how the quarter ran. Ad, that's helped to thank you. And then Matt, I mean, the new customer ads was a real highlight. It sounded like you had quite a bit of success from the partner ad perspective, some of the partners that you called out. I guess I'm wondering, you guys have had a lot of focus on increasing sales and marketing focus on partners. Could you, you know, maybe talk a little about why you're seeing some success there and how repeatable is that, especially with towards what seemingly sounds like a strong second half.

Greg Henry: Unchanged, and that's a competitive dynamic that we take on every day. So it's a complicated relationship, as you can appreciate just based on their scale, but it's one that we lean into for the reasons that I mentioned.

Gregory Henry: Yeah, just following up on the buildings and free cash flow, while we recognize are very important metrics, we have never guided to those. And we in particular would say buildings is not the best measure of our business, by any means. It can be very lumpy and particularly with Capella with the re by activity, it can be, you know, less far less frequent than that on the subscription side of the business. So we that's why we've been really trying to have people focus on ARR as one of our key metrics. I'd say also our PO and revenue obviously are good ones to look at, but buildings and free cash flow can be a little bit lumpy for us.

Speaker Change #113: Yeah, just following up on the buildings in free cash flow, while we recognize our very important metrics, we have never guided to those.

Matthew Cain: Yeah, Matt, certainly 62 net logo ads is a is a highlight of the quarter and I'd say it's aligned with several of our strategic initiatives on the go to market side, paying dividends. You know, as we've talked about, we made particular investments to cover strategic accounts. Ensure that we're increasing compelling momentum and, of course, increasing the pace of new logo adoption. I'd say the partner motion is pervasive across the entirety of our business and extends our reach and relevance with strategic customers.

Speaker Change #114: We, in particular, would say buildings is not the best measure of our business, by any means, it can be very lumpy and particularly with Capella, with the rebuy activity, it can be less far less frequent than on the subscription side of the business.

Speaker Change #114: So, that's why we've been really trying to have people focus on air, there's one of our key metrics I'd say also RPO and revenue obviously are good ones to look at, but buildings in free cash flow can be a little bit lumpy for us.

Gregory Henry: Although I will say in the free cash flow side, a year ago at this point, we were minus 10 million of free cash flow; in this year, or minus five. So I do feel good about the progress for making there. Thank you so much.

Matthew Cain: I think partners realize the unique role that we play with our differentiated platform. And our partner types range from, you know, the hyperscalers to different types of service providers and ISVs has and continues to be a really important, really important channel for us. You know, we're excited about this land and think it speaks to the strategic nature of our platform, aligning with strategic partners, unlocking new opportunity with really exciting next generation application.

Speaker Change #114: Although I will say in the free cash flow side, a year ago at this point, we were minus 10 million of free cash flow in this year where minus five. So I do feel good about the progress we're making there.

Ittai Kidron: Thank you. Your next question comes from Ittai Kidron with Oppenheimer Company, please. Thanks, not to be the dead horse here on the turn.

Speaker Change #115: God, a very warm ticket, thank you so much

Speaker Change #116: Thank you.

Speaker Change #117: Your next question comes from a Thai kid-drawn with up and high Marine Company, please say your question.

Speaker Change #118: Thanks not to be the dead horse here on the turn now.

Ittai Kidron: What gives you comfort? Is there any way to associate this for sales execution? I mean, I understand the customer got acquired in the division shutdown. That's part of what that happens. But clearly, there were other cases of down sales. What is it that makes you comfortable that this is not a sales execution issue rather than just bad coincidence over customer decision? Well, Ittai, you can appreciate, I would imagine, that we study this pretty hard. You know, we're talking about two big ones, one that we were prepared for and one that came with a little bit of a surprise.

Speaker Change #119: will give you a call for you.

Speaker Change #120: is your anyway to associate this for self execution. I mean, I understand the customer got acquired in the division shut down. That's part of what that happens. But clearly there were other cases of down sales. What is it that makes you comfortable that this is not a self execution issue rather than just a bad coincidence over customer decision.

Matthew Cain: So we fully expect to continue to drive benefits from that and quite frankly, with the platform that we have and the momentum of the business, I think it's going to only increase over time. Thanks a lot, guys. Thanks, Matt.

Cash Rangan: Our next question comes from Cash Rangan with Coleman Sachs, please state your question. Hi, thank you very much. Matt, you talked about the columnar database. I'm curious to get you to expand and talk on it. I always thought Jenny, I was more on the unstructured side of things. Obviously, databases have a huge role to play with the structured data, but can you can you expand? Is this something that you're sharing from your customers?

Speaker Change #120: for each eye.

Speaker Change #121: You can appreciate what I would imagine that we studied this pretty hard.

Cash Rangan: Are you proactively doing this? Database because I still want to understand how the columnar database fits with the broader GNI enablement of your customization. One for you, break the. Can you talk a little bit about the Q4 upcoming net new error growth that you expect within the customer base? What exactly is driving that is that from Capella or from the core platform? Thank you so much.

Speaker Change #122: We're talking about two big ones, one that we were prepared for and one that came with a little bit of a surprise.

Matthew Cain: Without getting into too much detail, the leading indicator on that account suggested that we were doing the right thing from a go-to-market perspective. We haven't yet talked about macro on the call. I think there were some cost pressures at play within the account where, quite frankly, we were not as strategically deployed as we are in healthy accounts. Now, we're aware of where we're vulnerable. And we have studied that pretty hard, and it represents a very, very small minority of our AR base. This happened to be one of them where we were thought we thought we were beyond the vulnerability approved, approved not to be true.

Speaker Change #123: Without getting into too much detail, the leading indicator on that account suggested that we were doing the right thing from a go-to-market perspective.

Speaker Change #124: We haven't yet talked about macro on the call, I think there were some cost pressures at play within the account.

Speaker Change #124: where quite frankly we're not as strategically deployed as we are in in healthy accounts. Now we're aware of where we're vulnerable and

Speaker Change #124: We have studied that pretty hard and it represents a very, very small minority of our ARBAs.

Matthew Cain: Cash, let me talk about the columnar database. Let me start first with kind of our very high level view on our role to play an AI. We have an opportunity to be the single source of truth to store index and search structured semi structured and unstructured data. The highlights we talked about in the quarter are advancing the platform for developer reach, developer productivity, and the columnar announcement is a big part of enabling that AI strategy.

Speaker Change #124: This happened to be one of them where we thought we were beyond the vulnerability, it proved not to be true.

Gregory Henry: And so, you know, that's something that we're going to go look at and see if there's anything we need to tighten up, but I do not think it's indicative of the rest of the business by any stretch whatsoever. And we deal with this dynamic on a quarterly basis. These two just, again, in the quarter without a strategic deal to offset, I'm kind of played out, which is why we're spending the time on it. And so, again, we don't think it changes anything for the year. I'm pleased with sales execution. You know, we talked about that in Q1.

Speaker Change #124: and so, you know, that's something that we're going to go look at and see if there's anything we need to tighten up. But I do not think it's indicative of the rest of the business by any stretch whatsoever. And we deal with this dynamic on a quarterly basis.

Speaker Change #124: these two just again.

Speaker Change #124: in the quarter without a strategic deal to offset. I'm kind of played out, which is why we're spending the time on it. And so again, we don't think it changes anything for the year. I'm pleased with sales execution. You know, we talked about that in Q1. We learned a lot from that.

Matthew Cain: If you think about a JSON application, the capability surrounding that JSON application from an ETL and analytics perspective are relational by definition. We have essentially shattered that barrier and built a native JSON analytics set to complement what we do on the operational side. This allows us to have zero ETL for JSON ingest multiple data sources, open up conversational analytics for developers, and critically important importantly provide operational right back for the application set.

Gregory Henry: We learned a lot from that. You know, some of the highlights from the quarter were really strong and, you know, my confidence in the fiscal year remains intact and, quite frankly, with the progress we're making in strategic accounts. It sets us up really well for a strong fiscal year, all things taken into account. Yeah, etai, if I could just add on to I just, you know, one of the things that's why we call it out is, to math point, we closed nearly all the deals from Q1 that slipped. That's a non-issue. And that also led to us delivering, you know, what was the third highest gross ARR achievement in company history.

Speaker Change #124: You know, some of the highlights from the quarter were really strong and you know, my confidence in the fiscal year remains.

Speaker Change #125: in tact and quite frankly, with the progress we're making in strategic accounts, set this up really well for a strong fiscal year, all things taken into account. Yeah, e-tie if I could just add on to, I just, you know, one of the things that's why we call it out is...

Matthew Cain: So columnar is the advancement that opens up these capabilities and data ingest, but it's really an extension of the platform that is very much in service of our AI strategy to be that single source of truth and bring AI technology into applications and really embed those capabilities to take application attributes to the next level. So exceedingly strategic for the pursuit of us as a data platform in the AI world that we're living in, and for those reasons, we're getting tremendous customer feedback and already uptake since since GA with the feature alongside the rest of the platform.

Speaker Change #126: to Matt's point. We closed nearly all the deals from Q1 that slipped. That's not a issue. And that also led to us delivering, you know, what was the third highest gross ARR achievement in company history? So again, the demand and our ability to close deals was very strong.

Gregory Henry: So again, the demand and our ability to close deals was very strong. As Matt talked about, unfortunately, we're one deal or one signature away from, you know, the net number being, you know, closer to where we were expecting it versus what we delivered, which we still feel is good. It's right down the middle of the guidance range, but obviously we have higher expectations than that as we move through.

Speaker Change #126: is Matt talked about and fortunately we were one deal in one signature away from

Unknown Executive: Thank you.

Speaker Change #127: The net number being closer to where we were expecting it versus what we deliver, which we still feel is good. It's right down the middle of the guidance range, but obviously we have higher expectations than that if we move through a quarter.

Ittai Kidron: I appreciate that. So I guess as we look at Q4, we're clearly, as you mentioned, we have a large contracted business, but also you're clearly chasing several strategic projects. Can you qualify to us? What is the number of strategic projects you hope to close? And by the way, what is your definition of such a project? Is that a 100 K plus land? Is this a? Help us understand the parameters around this, why spending so much time on it? What is the near-term impact of such deals and the long-term potential of such deals? Ittai, I'd say there are many, many of these strategics, and for us to call it out at that level, think seven-figure-plus AR increases. I've mentioned a few of these can become eight-figure AR customers for us over time.

Speaker Change #128: I appreciate that. So I guess as we look at two, two, four were clearly, as you mentioned, you have a large contracted.

Gregory Henry: I cast on your Q4 ARR question. So obviously, this is the first time we've guided to Q3 and are you done giving the full year guidance? You have been applied Q4 guide if you will. And what we want to call out is we do these large strategic deals and we've been doing these for years now when we build in growth over time within a contract. So for example, if you recall like last Q4, you know, we had a big nice RPO jump because we did a couple of very large deals, those were multi year deals.

Speaker Change #128: Business, but also you're clearly chasing several strategic projects.

Speaker Change #129: Can you qualify to us what is the number of strategic projects you hope to close?

Speaker Change #130: and by the way, what is your definition of such a new project? Is that a 100K plus land? Is this helpful from the sender parameters around this life spending so much time on it? What is the near term impact of such deals and the long-term potential of such deals?

Gregory Henry: So this is in some cases the second or third year taking in and based on our definition of ARR where we look at what's at the end of the quarter plus 12 months forward. Some of that will now get it will is getting pulled into Q4 and resides there. We want to give some context that we have this from time to time. Some quarter that's zero, some quarter that's the modest amount.

Etyze: Etyze, I'd say there are many, many of these strategic and rust to call it out at that level. Thank you.

Speaker Change #132: 7 Figure Plus AR increases. I've mentioned a few of these can become 8 Figure AR customers for a silver time.

Matthew Cain: These are going to be felt across the financials, and quite frankly, really drive our business. We work so hard to build a strategic platform that is so well aligned to enterprise projects. These are multi-year transactions where some of the biggest companies in the world are making decisions to invest it as a true strategic partner. We're figuring out the mix between license and Capella and exactly what structure is going to work for them. They can be complicated, but they're very worthwhile. And when we land these, we talked about how exciting they are, like one that we had in Q4, which drives a lot of benefits for us for some time.

Gregory Henry: Q4 in this particular case is a bit outside. We want to call it out given that now that you see the implied guidance of Q4 to give some confidence that the confidence that we have that we can deliver the second half and particularly Q4 because there is a healthy amount of ARR that's already contracted in Q4 specifically. Thank you.

Speaker Change #132: These are going to be felt across this and in financials.

Speaker Change #132: and quite frankly, really drive our business. We work so hard to build a strategic platform that is so well aligned too.

Speaker Change #132: Enterprise Projects.

Speaker Change #132: These are multi-year transactions where some of the biggest companies in the world are making decisions to invest it.

Speaker Change #132: and us as a true strategic partner.

Speaker Change #132: Figuring out the mix between license and Capella and exactly what structure is going to work for them.

Speaker Change #132: They can be complicated, but they're very worthwhile.

Brent Braseland: Our next question comes from Brent Braseland with Piper Sandler, please do your question. Thank you, Good afternoon. Matt, I wanted to double click into Capella. Net new ARR, they're more than doubled sequentially high as you've ever seen. Could you just walk through what drove that obviously? It sounds like there were a lot of new customers. Was there also a contribution from some migrations of existing customers? Just walk us through what drove the outside momentum just given it was so strong this quarter and I have a quick follow up.

Speaker Change #132: and when we lay in these, we talk about how exciting they are, like, you know, one that we add in Q4, which

Gregory Henry: So it's many of those accounts that kind of were set up where we're making great progress on customer negotiations and discussions and strategic planning and well beyond technical wins. And so we would be remiss if we didn't spend the time on them because of how critical they can be for us in the back half, but they are significant, and we have a very robust pipeline of these strategic accounts, which I'll remind everyone was a point of emphasis for us coming into the year because we understand the potential they have and the value unlock that's in front of us.

Speaker Change #132: drives a lot of benefits for us for some time, so it's many of those accounts that kind of were set up where we're making great progress on customer negotiations and discussions and strategic planning and well beyond technical wins.

Speaker Change #132: and so...

Speaker Change #132: We would be remiss if we didn't spend the time on them because of how critical they can be for us in the back half But they are significant and we have a very robust pipeline of these strategic accounts which I'll remind everyone was a point of emphasis

Matthew Cain: We have high expectations for Capella and I think we've had a quarter where those are proving out and I'd say it's balanced across all aspects that you talked about. We increase customer count which is now up to 31%. We increase ARR mix which is now 13.5%. That's a combination of net new applications as well as migrations. We also talked about the single largest Capella land that we've ever had and so Capella continues to be a significant growth vector for us.

Speaker Change #133: for us coming into the year, because we understand the potential they have and the value on lock that's in front of us. Yeah, any tile, just add one more thing is...

Gregory Henry: Yeah, any tile just add one more thing: is the large majority of these strategic deals we're talking about either have a renewal point in the second half or another compelling event. There are a few that are even talking to us that are early fiscal 26 renewal that are talking about potentially getting deals done. I wouldn't call those in the same category because they don't have the exact compelling event of a renewal right now. But again, large majority are renewals are compelling some fiscal 26 deals, or customers are already starting to talk to us about potentially doing something in the second half of 25.

Speaker Change #133: The large majority of these strategic deals we're talking about, either have a renewal point in a second half or another compelling event.

Speaker Change #133: There are a few that are even talking to us that are early fiscal 26 renewal that are talking about potentially getting deals done. I wouldn't call those in the same category because they don't have the...

Speaker Change #133: is an exact compelling event of a renewal right now, but again, large majority are renewals or compelling, so I'm fiscal 2060, the customers are already starting to talk to us about potentially doing something in the second half of 25.

Matthew Cain: Customers value the service, developers want to focus on building great applications and uploading a lot of data management to cash based and we're seeing that play out across accounts of all sizes quite frankly and all geographies across the world. So we anticipate that this is going to continue. Some of those levers are going to be dependent on pace of migrations but over normalizing for time we expect this to be a significant lever of growth for us on a go forward basis and are seeing nothing but positive leaning indicators across all aspects of how we track Capella.

Ittai Kidron: Appreciate it.

Jason Ader: Our next question comes from Jason Aitor with William Blair. Please stay a question. Thank you.

Speaker Change #133: I appreciate it

Speaker Change #134: Our next question comes from Jason Aether with William Blair, please stay a question.

Gregory Henry: I guess the first question is, do you think it's possible that you could be operating breakeven by the end of next year? I know you've talked about free cash flow positive next year, but just... Stone, on the operating line, non-gap operating income, do you think that could be, you think you could turn positive, or break even, at some point, wait next year?

Jason Aether: Thank you.

Jason Aether: I guess first question is, do you think it's possible that you could be operating breakeven by the end of next year and then you've talked about free cash flow positive next year but just on.

Speaker Change #136: and the operating line, non-gap operating income. Do you think that could be, if you could turn positive or break even, that's some point, maybe late next year.

Gregory Henry: Yeah, hey Jason, it's Greg. I certainly know, I mean, our commitment that going back to the investor day was fiscal 27 for, for the full year, could, could you see a quarter maybe, but again, we're not, we're not committing to that other than the free cash will piece at this time. I'm glad you asked, though. But you can see, we are driving hard towards that and really committed to doing that, but no, we do not expect to be non-GAAP, up income, flatter positive than fiscal 26 for the year.

Gregory Henry: Helplacola there and then Greg as you just think about turning down so can you just remind us what the the growth retention of the business has been over the last let's say two, three years and then maybe walk through the logic of what you're baking in on a go forward basis. Do you think there might be a slightly more elevated turn assumption you're baking into the back half of the year any additional color there would be helpful thanks.

Speaker Change #136: Yeah, hey, Jason, it's Greg. I certainly know, I mean, commitments that going back to the best of day was fiscal 27th or...

Speaker Change #137: for the full year, you see a quarter maybe but again we're not committing to that other than the free cash will piece at this time.

Speaker Change #138: I'm glad you asked though you can see we are driving hard towards that and really committed to doing that but we do not expect to be non-gap, up and come flat or positive in fiscal 26 for the year.

Jason Ader: Okay, good.

Jason Ader: All right, and then I think what, my observation from some of the other questions is just, I think people are scratching their heads on the ARR guidance just because it doesn't feel like it's de-risked. Just, you've had a challenging first half of the year on that new ARR, and now you basically didn't change the ARR guidance for the year. And I think you explained why you feel good about Q4, but it also doesn't feel like it's de-risked.

Speaker Change #139: Okay, good. All right, and then I think with my observation from some of the other questions, it's just...

Gregory Henry: Yeah, Hey Brent, so yeah, we don't really disclose the growth retention. I can tell you with a healthy enterprise level growth retention that we've experienced ever since we've been a public company. And we are not anticipating there be additional elevated levels of loss and downsell in the second half. We think it normalizes. We think you too is an anomalous. Obviously with what's going on the macro we're watching closely, but you know, we've gone through and looked very closely at what's up for renewal in the second half and evaluated that.

Speaker Change #140: I think people are scratching their heads on the ARR guidance just because

Gregory Henry: And we do not see where there's going to be again anomalous loss and downsell and should have get back to the healthy, you know, growth retention renewal rate that we've been seeing historically got it helpful color. Thank you. Thanks Brent.

Speaker Change #141: It doesn't feel like it's the rest.

Speaker Change #142: Just you've had a challenging first half of the year on that new ARR and now you basically didn't change the ARR guidance for the year and I think you explained why.

Speaker Change #143: and you feel good about Q4, but it also doesn't feel like it's de-risked. So what was the debate internally on lowering ARR guidance versus keeping it, where it is?

Matthew Cain: So, what was the debate internally on lowering ARR guidance versus keeping it where it is? Well, Jason, I'd say that we've approached this as we always do with, you know, the utmost amount of analysis and, you know, studying every leading indicator and trend and account information that we have, and I'll state that we feel very comfortable with the guidance that we've provided. When we look at the fundamentals of the business, we have a very predictable enterprise model that plays out over time. The discussion that we're having is around some of the lumpiness in big accounts on a quarterly boundary that have happened to play out, you know, in the quarter, which we fully expect to offset on a multi-quarter basis.

Speaker Change #143: Well Jason, I'd say that we've approached this as we always do with

Mike Seacos: Your next question comes from Mike Seacos with Needham and Company. Please say your question. Hey guys, thanks for taking the questions here. I was just hoping to see if we get a little bit more color. I know we're all circling around the turn and downsell. But is there any way you can kind of discuss where these customers potentially newer cohorts into the Couchbase customer base or have they been around for a while and really the reason for the question is if I just look at the momentum that you guys have from a product velocity and innovation standpoint, whether it's the GA of mobile with vector search or you guys just recently announced column or now.

Speaker Change #144: You know, they are most...

Jason Aether: I'm out of analysis and, you know, studying.

Speaker Change #145: Every leading indicator in trend and the count information that we have and I'll state that we feel very comfortable with the guidance that we've provided. When we look at the fundamentals of the business, we have a very predictable enterprise model that plays out over time.

Speaker Change #145: The discussion that we're having is around some of the lumpiness in big accounts on a quarterly boundary that have happened to play out in the quarter which we fully expect to offset on a multi-quarter basis.

Matthew Cain: It's just a bit striking or counterintuitive to hear about this churning downsell and just want to make sure that we're thinking about this appropriate as far as this is an anomaly here in Q2. Hey Mike, this is Matt. I appreciate you calling this out. Let's take our time with this. Any time we enter a fiscal period, a significant driver for the for the financial year is our renewal base and we study the shape of the renewal base and the health of the renewal base.

Gregory Henry: On top of that, we have the Capella business, which is driving financial benefits, you know, throughout the financials that we don't have in the rearview mirror, but, you know, we're talking about the highlights that layer on top of it. And so we understand where these levers sit and the contracted ARR, which Greg has articulated in Q4, which is material. So if we look at the balance of the back half, everything that we're calling is well within, you know, the normal ranges of quarterly seasonality, execution, pipeline conversion. And what gives us a confidence is the cover that the very unique and well-earned pipeline of strategic opportunities provides, where we don't have to, you know, chop all that wood in the back half.

Speaker Change #146: On Papa Dad, we have the Coppella Business, which is driving financial benefits.

Speaker Change #146: You know, throughout the financials that we don't have in the rearview mirror, but, you know, we're talking about the highlights that layer on top of it. And so we understand where these levers sit.

Matthew Cain: Shape obviously being winner accounts up for renewal and the health renewal base really looking at a specific account. How strategic are we with our deployment with that customer? How many services are they leveraging with respect to the database? How many applications do we have deployed? As we've talked about coming into the year, this year's renewal base is disproportionately allocated to the second half. What is proving also to be true is that the relative healthy upside is also seemingly sitting in the back half with what we were talking about these large strategic accounts.

Speaker Change #146: and the contracted ARR, which Greg has articulated in Q4, which is material. So if we look at the balance of the back half, everything that we're calling is well within the normal ranges of...

Speaker Change #146: Quarterly Seas and Allity, Execution, Pipeline, Conversion, and what gives us a confidence is the cover that this...

Speaker Change #146: very unique and well-earned pipeline of strategic opportunities provides where we don't have to.

Gregory Henry: To have a great result, but we have a lot of wood to get after, which we feel great about. So when we build the business from, you know, enterprise renewal rates, expansion rates, layer on Capella contracted ARR, again, we have confidence in the back half number. And set up with kind of the entirety of the fiscal year. Yeah, Jason, I just add to again, if we have the visibility, obviously what's in the renewal pool, and we've talked about, is disproportionately weighted in the second half. If you take that, if you take the fact, like Matt was saying, you take the contracted ARR and sort of, again, we can see it and back it out.

Speaker Change #146: you know, chop all that wood in the back half to have a great result, but we have a lot of wood to get after, which we feel great about. So when we build the business from, you know, enterprise renewal rates, expansion rates, layer on Capella, contracted ARR.

Matthew Cain: And just to give some perspective on large strategic accounts, we've often referred to our business as a land and explode model. These are multi year very strategic accounts that have the potential to be up to eight figure AR that at the point of transaction, deliver disproportionate AR growth. Offsetting that is kind of the natural part of our business which is loss and downsell. What we called out in the second quarter is as normal kind of course of business, we can predict the certain amount of loss and downsell.

Speaker Change #146: Again, we have confidence in the back half number and set up with kind of the entirety of the fiscal year.

Speaker Change #146: and Jason, I just add to again if we have the visibility obviously what's in the renewal pool and we've talked about it's disproportionately weighted in the second half.

Matt Cain: If you take that, if you take the fact like Matt was saying, you take the contract that there are, and sort of, again, we can see it and back it out, the math for us internally all hold together in terms of what we can do in terms of expanding the population of renewal base.

Gregory Henry: So the math for us internally all hold together in terms of what we can do in terms of expanding the population of renewal base, generating ARR from that, as well as from, you know, the Capella momentum that you see as well. So for us, that's what gives us the confidence that that mass is out, and that's why again, we want to call. I can see how this contracted ARR mount out, because without that I could see how someone from the outside would think that it looks a little bit outsized, but it's very much within the norms of what we've delivered historically.

Speaker Change #147: Generating ARR from that as well as from the compelling momentum that you see as well. So, for us, that's what gives us the confidence that that math it out and that's why again, we want to call.

Matthew Cain: But there were really a couple accounts that delivered more meaningful as in outside the norm downsell. One of them that was an acquisition where they shut down the business into the seven figures that we were prepared for and the one that came a little late. What we didn't have in the quarter is one of those strategic accounts transact that would have would have completely offset that. Now as we look at the kind of makeup of the year, we can't lose sight of the strategic accounts that we're highlighting and the opportunity that has which reinforces our confidence for the year.

Speaker Change #148: This contracted air arm out, because without that I could see how someone from the outside would think that it looks a little bit outside, but it's very much within the norm and what we've delivered historically.

Gregory Henry: Could you give us the magnitude of that ARR contract that grows from that contract? Not specifically, but I'll say it's several million dollars. And again, much more significant than we would see in any historical quarter, which is again why we're calling it out.

Speaker Change #149: Could you give us the magnitude of that ARR contract that grows in that contract?

Speaker Change #149: Now specifically, but I'll say it's several million dollars.

Speaker Change #150: and again, much more significant than we would see in any historical quarter, which is again why we're calling it out.

Gregory Henry: Thank you, guys.

Matthew Cain: And as I look at kind of the fiscal year and the entirety, we look at the predictability of our enterprise business renewal rates, expansion rates. And we fully expect that that to continue. You know, the upside is often derived with how we execute on on big accounts and the health of the pipeline in the back half is quite frankly one of the best we've ever seen in terms of the number of accounts.

Raimo Lenschow: Our next question comes from Raimo Lenschow with Barclays. Please say your question. Perfect, thank you. Two quick questions, and thanks for squeezing me in. The first one is staying on that subject.

Speaker Change #151: Alright, thank you guys.

Speaker Change #151: Now our next question comes from Raymo Lensha with Barclays, please say a question.

Speaker Change #152: P perfect, thank you.

Raymo Lensha: Two quick questions and thanks for squeezing me in. The first one is staying on that subject.

Raimo Lenschow: Is that like just the Q4 having these kind of future AR commitments, with that function of you kind of changing how you're kind of working with customers and deals structure, and then it's something that came together. So it seems all that's kind of it's coming together now, and then can you also mention what's driving the downsell? So we all talked about the customer loss, and I get it; you know, doesn't look under your control. But what's driving down? So let's add like economic activity at the customer. They had the over committed and now kind of right sizing.

Speaker Change #154: Is that like a Justin?

Speaker Change #155: and the Q4 having the kind of future year on commitment.

Matthew Cain: The size of expansion that can come and the geographic distribution, again, all part of our strategic investments. What isn't reflected in the quarter is the progression that we've made with those strategic accounts that again further underpins our confidence for the year. So loss and downsell, we believe isolated more one offs. The math converges over time offset by those strategic opportunities and we have very good visibility in the second half, which kind of completes the full picture.

Speaker Change #156: with a function of you kind of changing how you...

Speaker Change #157: kind of working with customers and deals structure and then it's something that just came together with teams, it seems all that's kind of it's coming together now and then can you also mention what's driving the down cell so we all talked about the customer loss and I get it, you know, it doesn't look on your control but what's driving down cell is that like

Speaker Change #158: Economic Activity at the customer, they had the over-committed and now kind of right-hizing what's driving that. Thank you.

Gregory Henry: What's driving that? Thank you.

Gregory Henry: Yeah, let me answer the first question. No, we haven't changed how we do and structure deals to generate this contracted AR. This is always part of our business. And again, it's in flows based on timing some quarters. Like I said, it'll be zero. There's been a modest amount. I think what's driving. This is last Q4 in particular. We renewed two of our largest customers into multi-year transactions with substantial amounts of growth that were just built in because of the growth that they're experiencing and the investment that they're willing to make with Couchbase. So that's really the only driver of the dynamic.

Speaker Change #159: The elevator answered the first question. No, we haven't changed how we do in structure deals to generate this contracted ARR. This is always part of our business.

Matthew Cain: Thank you very much for the thorough answer there, I definitely appreciate it. And I guess for the follow-up, if I could just tack on first, great to hear the reiteration on the view that next year will be free cashful positive. Just wanted to double check on the op-backs, the expense discipline shown Q2 really was across the board in every line item there. And I'm trying to think you guys obviously have these go-to-market initiatives, whether it's tapping more heavily into partners, re-engaging with them while offering incentives.

Speaker Change #160: again, it absinit flows based on timing, some quarters, like I said, it will be zero, there will be a modest amount. I think what's driving this is, last Q4, in particular, we renewed two of our largest customers.

Speaker Change #160: into multi-year transaction.

Speaker Change #160: with some substantial amounts of growth that were just built in because of the growth that they are experiencing and the investment that they're willing to make with couch-based. So that's really the only driver of the dynamic otherwise it's pretty much in mind, but those were two extremely large counts we had last year for.

Gregory Henry: Otherwise, it's pretty much in line, but those were two extremely large counts we had last Q4.

Matthew Cain: So over the remainder of the year, I guess can you just give us a reminder, how should we think about the partners continuing to beat the drum on behalf of Couchbase? Where does the, I guess, what is the port of contribution to deals today versus where we expect us to scale to? But Mike, I think we called out the partner activity on the ISV because of the outsized new logo addition, but I'd say partners has been a persistent part of our business and we've scaled investments there to, you know, align with, you know, other investments as we've grown the company.

Gregory Henry: Yeah, I'm on with respect to the down sell. I'd say, with the exception of two big accounts, one that was planned and the one that we've talked about, everything's within the norms of our predictable business. We need to call those out for the reasons that we've talked about, but I don't think there's much more to it than those being one-off situational things for all the reasons we've talked about. We feel very comfortable with our AR base, the strategic nature of our platform, our ability to compete and grow. And so, with respect to a multi-period outlook, nothing has changed, and we feel confident in the year.

Speaker Change #161: I'm on with respect to the downsell, I'd say with the exception of

Speaker Change #161: Two big accounts, one that was planned and the one that we've talked about, everything's within.

Speaker Change #161: the norms of our predictable business.

Speaker Change #161: We need to call those out for the reasons that we've talked about, but I...

Speaker Change #161: I don't think there's much more to it than those being one-off situational things for all the reasons we've talked about.

Speaker Change #161: We feel very comfortable with our ARBAs, the strategic nature of our platform, our ability to compete and grow. And so with respect to a multi-period outlook, nothing has changed.

Matthew Cain: It has been and continues to be an important lever for us, but it's not as if we haven't already invested in an adequate level or are on an appropriate slope to drive the growth that we're committed to. Look, I think, you know, a lot of this is about getting more efficiency. We talked a lot about having built a great foundation and getting to the compelling flexion, which is going to lead the leverage.

Gregory Henry: I don't think there is no kind of broader pattern beyond those two big outliers. Yeah, and I would just add that those two outliers were losses, which was really the driver. We were calling it loss and down sell, but those two are the losses that are driving it. And right now to your question, the down sell, they just happened from time to time where customers will spin up an app or spin down an app or something changes with the environment or, you know, they're not typically again very large and significant. It's the losses that were the ones that were the ones this quarter.

Speaker Change #161: and we feel confident in the year. I don't, there is no.

Speaker Change #162: kind of broader pattern beyond those two big outliers. Yeah, and I would just add that those two outliers were losses, which was really the driver. We were calling it loss and down so, but the loss, those two are the losses that are driving it.

Matthew Cain: What I would point out is our ability to get more out of our spend, our innovation team is firing at a level that quite frankly they never have with Capella as a platform, our ability to do that more efficiently and extract appropriate amount of value from the market with that offering is going up, go to market teams increase in their sophistication on finding new customer prospects and efficiently, you know, getting them through the funnel. So we remain committed on kind of rule of 40 and free cash flow progress and we're able to do that by investing in in quite frankly a more efficient way as our platform matures and market dynamics remain extremely attractive for us. So I'd say all of those things factor into, you know, the financial commitments and partners being one part of that. Great.

Speaker Change #163: and what do you question the downsells? They just happen from time to time, more customers will spin up an app or spin down an app or something changes with the environment or, you know, they're not typically, again, very large and significant. It's the losses that were the ones that come.

Raimo Lenschow: Thanks, Raimo.

Speaker Change #164: for the one this quarter. Okay, that's great to hear. Hey, thank you.

Operator: Thank you. And we have time for one last question.

Speaker Change #165: Thanks for having me.

Unknown Executive: Thank you very much, guys.

Howard Ma: Our next question comes from Howard Ma with Guggenheim Securities. Please steer questions. Great, thanks. Greg, I have a question for you, just to drive the point home on back half AR. I thought that your AR definition is based on contracted AR. So, I mean, I could be mistaken, but when you talk about the higher than normal amount of AR that's contracted to start Q4, wouldn't that already be faked into your reported AR today? And quickly, just on a related note, would you talk about the back half expansions, or the new AR being back half weighted?

Speaker Change #166: Thank you, and we have time for one last question, our next question comes from Howard Maaw with Guggenheim Security's Police to your question

Speaker Change #167: Greta, thanks!

Speaker Change #167: Craig, I have a question for you, just to drive the point home on that cafe RR.

Howard Maaw: I thought that your AR definition is based on contracted AR, so I mean, I could be mistaken but when you talk about the higher than normal amount of AR that's contracted to start Q4,

Speaker Change #169: wouldn't that already be taken to your reported ART today? And quickly, just on a related note, what you talk about the back cap expansions, or the NINU ART being back cap weighted, are you talking about the cap expansions? Or...

Sanjit Singh: Our next question comes from Sanjit Singh with Morgan Stanley. Please stay a question. Great. Thank you. You have two known for Sanjit.

Howard Ma: Are you talking just expansions, or are you baked in a good amount of net new from new logos? That's in there as well. Thanks.

Matthew Cain: Maybe to start with one higher level of question. I mean, you obviously have been spoken to some of the downtown churn dynamics within your base. You've also spoken about the opportunity of buying for that thing of sorts of truth and AI. You're obviously not the only company buying for that and clearly the hyperscalers are playing a big role in these new way for the AI applications. So could you just sort of contextualize what you're seeing and your partnership, but also in your competition with the hyperscalers on any meaningful shifts into competitive intensity or win rates that you would call out.

Speaker Change #170: or are you faith in a good amount of net view from new logos that that's in there as well. Thanks.

Gregory Henry: Yep, Howard, I'll start with your second question first. So, what's weighted towards the back half, is the renewal. We have significantly larger renewal pool in the second half than we did in the first half. We knew that coming into the year. We've talked about that previously. We tend to upsell at the time of renewal. It just gives us a better opportunity from an upsell perspective to drive new business. But we are not assuming higher upsell rates, higher new logo than we've experienced. Everything is within the range. But again, that's why we're calling out this contracted ARR, because that is material in this corner.

Speaker Change #171: Howard, I'll start with your second question for her.

Speaker Change #172: What's waiting towards the back half is the renewal we have.

Speaker Change #173: Significantly larger renewal pool in the second half, then we did in the first half. We knew that coming into the year. We've talked about that previously. We tend to upsell at the time of renewal. It just gives us a better opportunity from an upsell perspective to drive new business.

Gregory Henry: And then the second question, sort of on your billings and precafial. You spoke to the slip yields from Q1 closing. Yeah, it seems like your billings and the precafial is slightly below where the street expected to be anything that you can kind of highlight on what drove that as well. I'll start and then I'll turn it over to Greg. Look at at a very high level, we are here to build a database for enterprise applications, which increasingly are going to be driven and enhanced with AI.

Speaker Change #173: but we are not assuming higher upsell rates, higher, you know, new logogos that we've experienced everything is within the range.

Speaker Change #174: But again, that's why we're calling out this contract today or are because that is material in this quarter

Gregory Henry: And yes, we take anything at the end of a period plus 12 months forward. So if you do a multi-year deal, three-year deal, when you sign it the first year and you look out 12 months, you may get into your two. But then, when you get to the end of year one, beginning of year two, then you'll look into year three and take that value. And again, during these contracts, all three years have different values. So year one can be a million dollars. Year three can be three million dollars. And depending on which year you're in, you'll pick up, you know, you might pick up a million at the signing of the deal.

Speaker Change #174: and yes, we take anything at the end of a period.

Speaker Change #174: plus 12 months forward. So if you do a multi-year deal, three-year deal, when you sign it the first year, you'll look out 12 months, you may get into year two.

Gregory Henry: And if we look at our core architecture and what we've been building for the future, for this moment and the one that we are going to experience, the core attributes that make us great, scale, performance, flexibility, cloud to edge architecture, native JSON, SQL compatibility, you know, have never been more relevant. And if I step back and put myself in the shoes of our enterprise customers and think about what they're going to need from a data platform and define the attributes, you'd be hard pressed in my opinion to find a better starting point than Couchbase.

Speaker Change #174: but then when you get to the end of your one, beginning of your two, then you'll look into your three and take that value and again, during these contracts, all three years have different values.

Speaker Change #174: So...

Speaker Change #174: You're one can be a million dollars, you're two can be two million dollars, you're three can be three million dollars

Speaker Change #174: and depending on what you're in, you'll pick up.

Gregory Henry: But you know you still have growth from two to three million the following year, and you'll get that as well. That is the dynamic that's happening. So these deals are done. There is it's 100% going to happen. It obviously has no revenue impact immediately. But we do have the ARR coming in Q4 from what's contracted a year or even sometimes more. God, it's super clear. I understand now. Thanks, Greg. You're welcome. Thank you.

Speaker Change #174: You know, you might pick up a million.

Speaker Change #174: at the signing of the deal, but you know you still have growth from two to three million the following year and you'll get that as well. That is the dynamic that's happening, so these deals are done, there is it's a hundred percent going to happen, it obviously has no revenue impact.

Speaker Change #174: Immediately, but we do have the ARR coming in Q4 from what's contracted a year or even sometimes more.

Gregory Henry: And our teams wake up and ensure that we're building the next generation of capabilities and services to enable our enterprise customers to be successful with these enterprise applications. If we're doing that, we're going to have to solve problems in a unique and differentiated way relative to other solutions that are out there, which include native services from the cloud providers. I'd say that's a dynamic that we've been dealing with and we'll deal with for some time, but we pride ourselves at solving customer problems and doing it in a compelling and differentiated way that includes hybrid cloud edge deployments, you know, some core capabilities that the hyperscalers don't have in their offering.

Speaker Change #174: God, it's super clear I understand now. Thanks, Greg.

Operator: And that concludes our Q&A session.

Greg Henry: and welcome.

Matthew Cain: I'll now hand the floor back to McCain for closing comments. Thanks, operator. Thank you all for joining us. We look forward to speaking with you all again soon. Have a great day. Thank you.

Greg Henry: Thank you, and that concludes our Q&A session on a matter of hand the floor back to Matt Cain for closing comments.

Matt Cain: Thanks, Operator. Thank you all for joining us. We look forward to speaking with you all again soon. Have a great day.

Operator: This concludes today's call. All parchment disconnect.

Speaker Change #175: Thank you, this concludes today's call, all parts of my business connect, have a good day.

Speaker Change #175: [inaudible]

Gregory Henry: At the same time, we really value those relationships as we go to market and we deploy Capella in their cloud and we partner with, you know, other services within their SPAC. And so I'd say this is an ongoing dynamic on the margin. If I were to comment on kind of the co-opitation dynamic, I would say partnership in momentum and development, particularly in emerging geographies, is very positive. And I'd say the competitive dynamic on a platform level remains unchanged.

Gregory Henry: And that's a competitive dynamic that we take on every day. So it's a complicated relationship as you can appreciate just based on their scale, but it's one that we lean into for the reasons that I mentioned.

Gregory Henry: Yeah, just following up on the billings and free cash flow, while we recognize are very important metrics, we have never guided to those. And we in particular would say billings is not the best measure of our business by any means. It can be very lumpy and particularly with Capella with the rebuy activity. It can be, you know, far less frequent than on the subscription side of the business. So that's why we've been really trying to have people focus on ARR is one of our key metrics, I'd say also RPO and revenue obviously are good ones to look at.

Gregory Henry: But billings and free cash flow can be a little bit lumpy for us. Although I will say in the free cash flow side, a year ago at this point we were minus 10 million of free cash flow in this year or minus five. So I do feel good about the progress we're making there.

Unknown Executive: Thank you so much. Thank you.

Ittai Kidron: Your next question comes from Ittai Kidron with Oppenheimer Company, please state your question. Thanks not to be the data horse here on the churn. What gives you comfort?

Matthew Cain: Is there any way to associate this for execution? I mean I understand the customer got acquired and the division shut down. That's part of life that happens. But clearly there were other cases of down sales. What is it that makes you comfortable that this is not a sales execution issue rather than just a bad coincidence over customer decision? Well, Ittai, you can appreciate, I would imagine that we study this pretty hard.

Matthew Cain: We're talking about two big ones, one that we were prepared for and one that came with a little bit of a surprise. Without getting into too much detail, the leading indicator on that account suggested that we were doing the right thing from a go to market perspective. We haven't yet talked about macro on the call. I think there were some cost pressures at play within the account where, quite frankly, we were not as strategically deployed as we are in healthy accounts.

Matthew Cain: Now, we're aware of where we're vulnerable and we have studied that pretty hard and it represents a very, very small minority of our AR base. This happened to be one of them where we thought we were beyond the vulnerability approved not to be true. That's something that we're going to go look at and see if there's anything we need to tighten up. But I do not think it's indicative of the rest of the business by any stretch whatsoever.

Matthew Cain: We deal with this dynamic on a quarterly basis. These two just, again, in the quarter without a strategic deal to offset them kind of played out, which is why we're spending the time on it. Again, we don't think it changes anything for the year. I'm pleased with sales execution. We talked about that in Q1. We learned a lot from that. Some of the highlights from the quarter were really strong and my confidence in the fiscal year remains intact and, quite frankly, with the progress we're making in strategic accounts, sets us up really well for a strong fiscal year. All things taken into account.

Gregory Henry: Yeah, etai, if I could just add on to, I just, you know, one of the things that's why we call it out is, to Matt's point, we closed nearly all the deals from Q1 that slipped, that's a non-issue. And that also led to us delivering, you know, what was the third highest gross ARR achievement in company history? So, again, the demand and our ability to close deals was very strong as Matt talked about.

Gregory Henry: Unfortunately, we're one deal or one signature away from, you know, the net number being, you know, closer where we were expecting it versus what we delivered, which we still feel is good. It's right down the middle of the guidance range, but obviously, we have higher expectations than that, if we move through a couple of- I appreciate that.

Matthew Cain: So I guess as we look at Q4, we're clearly, as you mentioned, have a large contracted business, but also you're clearly chasing several strategic projects. Can you qualify to us what is the number of strategic projects you hope to close? And by the way, what is your definition of such a project? Is that a 100 K plus land? And is this a couple of some to send to parameters around this while you're spending so much time on it?

Matthew Cain: What is the near term impact of such deals and the long term potential of such deals? I'd say there are many, many of these strategic and for us to call it out at that level, think seven figure plus AR increases. I've mentioned a few of these can become eight figure AR customers for us over time. These are going to be felt across the financials and quite frankly really drive our business. We work so hard to build a strategic platform that is so well aligned to enterprise projects.

Matthew Cain: These are multi-year transactions where some of the biggest companies in the world are making decisions to invest it as a true strategic partner. We're figuring out the mix between license and Capella and exactly what structure is going to work for them. You know, they can be complicated, but they're very worthwhile. And when we land these, we talked about the how exciting they are, like, you know, one that we had in Q4, which drives a lot of benefits for us for some time.

Matthew Cain: So it's many of those accounts that kind of were set up where we're making great progress on customer negotiations and discussions and strategic planning and well beyond technical wins. And so we would be remiss if we didn't spend the time on them because of how critical they can be for us in the back half, but they are significant. And we have a very robust pipeline of these strategic accounts, which I'll remind everyone was a point of emphasis for us coming into the year because we understand the potential they have and the value unlock that's in front of us.

Matthew Cain: Yeah, any tile just had one more thing is the large majority of these strategic deals we're talking about either have a renewal point in the second half or another compelling event. There are a few that are even talking to us that are early fiscal 26 renewal that are talking about potentially getting deals done. I wouldn't call those in the same category because they don't have the exact compelling event of a renewal right now. But again, large majority are renewals are compelling some fiscal 26 deals or customers are already starting to talk to us about potentially doing something in the second half of 25.

Jason Ader: I appreciate it.

Gregory Henry: Our next question comes from Jason Aitor with William Blair. Please stay a question. Thank you.

Gregory Henry: I guess first question is do you think it's possible that you could be operating breakeven by the end of next year? I know you've talked about free cash flow positive next year but just... Stone, on the operating line, non-gap operating income, do you think that could be, you think you could turn positive or break even at some point, but I'll be late next year? Yeah, hey Jason, it's Greg. I certainly know, I mean, our commitment that going back to the investor day was fiscal 27 for for the full year, could, could you see a quarter maybe, but again, we're not, we're not committing to that other than the free cash will piece at this time. I'm glad you asked though.

Gregory Henry: You can see we are driving hard towards that and really committed to doing that, but, no, we do not expect to be non-gap, up income, flatter positive and fiscal 26 for the year. Okay, good. All right.

Jason Ader: And then I think what my observation from some of the other questions is just, I think people are scratching their heads on the ARR guidance just because it doesn't feel like it's de-risked. Just, you've had a challenging first half of the year on that new ARR and now you basically didn't change the ARR guidance for the year. And I think you explained why you feel good about Q4, but it also doesn't feel like it's de-risked.

Gregory Henry: So, what was the debate internally on lowering ARR guidance versus keeping it where it is? Well, Jason, I'd say that we've approached this as we always do with, you know, the utmost amount of analysis and, you know, studying every leading indicator and trend and account information that we have. And I'll state that we feel very comfortable with the guidance that we've provided. When we look at the fundamentals of the business, we have a very predictable enterprise model that plays out over time.

Gregory Henry: The discussion that we're having is around some of the lumpiness in big accounts on a quarterly boundary that have happened to play out, you know, in the quarter, which we fully expect to offset. On a multi quarter basis. On top of that, we have the Capella business, which is driving financial benefits, you know, throughout the financials that we don't have in the rear view mirror, but, you know, we're talking about the highlights that that layer on top of it.

Gregory Henry: And so, we understand where these levers set and the contracted ARR, which Greg has articulated in Q4, which is material. So, if we look at the balance of the back half, everything that we're calling is well within, you know, the normal ranges of quarterly seasonality execution, pipeline conversion. And what gives us a confidence is the cover that the very unique and well earned pipeline of strategic opportunities provides where we don't have to, you know, chop all that wood in the back half to have a great result.

Gregory Henry: But we have a lot of wood to get after, which we feel great about. So when we build the business from, you know, enterprise renewal rates, expansion rates, layer on Capella contracted ARR. And in the back half number. And set up with kind of the entirety of the fiscal year. Yeah, Jason, I just add to again, if we have the visibility, obviously, what's in the renewal pool and we've talked about is disproportionately weighted in the second half.

Gregory Henry: If you take that, if you take the fact, like Matt was saying, you take the contracted ARR and sort of, again, we can see it and back it out. So the math for us internally all hold together in terms of what we can do in terms of expanding the population of renewal based generating ARR from that, as well as from, you know, the Capella momentum that you see as well. So for us, that's what gives us the confidence that that math it out.

Gregory Henry: And that's why again, we want to call. So this contracted ARR mount out because without that I could see how someone from the outside would think that it looks a little bit outsized but it's very much within the norms of what we've delivered historically.

Gregory Henry: Could you give us the magnitude of that ARR contract growth in that contract? Not specifically but I'll say it's several million dollars. And again, much more significant than we would see in any historical quarter, which is again why we're calling it out. Thank you guys.

Raimo Lenschow: Our next question comes from Raimo Lenschow with Barclays, please say your question. Perfect. Thank you. And two quick questions and thanks for squeezing me in. The first one is staying on that subject. It's, is that like a just an Q4 having these kind of future AR commitments with that function of you kind of changing how you kind of working with customers and deals structure and then it's just something that just came together.

Raimo Lenschow: It seems it seems all that's kind of it's coming together now. And then can you also mention what's driving the down so we all talked about the customer loss and I get it, you know, doesn't look on your control. But what's driving down so let's add like economic activity at the customer. They had the over committed and now kind of right sizing. What's driving that? Thank you.

Gregory Henry: Yeah, let me answer the first question. No, we haven't changed how we do and structure deals to generate this contracted ARR. This is always part of our business. And again, it's in flows based on timing some quarters, like I said, it'll be zero. There's be a modest amount. I think what's driving this is last Q4 in particular, we renewed two of our largest customers into multi year transactions with substantial amounts of growth that were just built in because of the growth that they are experiencing and the investment that they're willing to make with couch base. So that's really the only driver of the dynamic. Otherwise, it's it's pretty much in line, but those were two extremely large counts we had last Q4.

Matthew Cain: Aramone, with respect to the down sell, I'd say with the exception of two big accounts, one that was planned and the one that we've talked about everything's within the norms of our predictable business. We need to call those out for the reasons that that we've talked about, but I don't think there's much more to it than those being one off situational things for all the reasons we've talked about. We feel very comfortable with our ARR base, the strategic nature of our platform, our ability to compete and grow.

Matthew Cain: And so with respect to a multi period outlook, nothing has changed. And we feel confident in the year, I don't there is no broader pattern beyond those two big outliers. Yeah, and I would just add that those two outliers were losses, which was really the driver. We were calling it loss and down sell, but those two are the losses that are driving it. And Aramone, to your question, the down sell, they just happened from time to time where customers will spin up an app or spin down an app or something changes with the environment or, you know, they're not typically again very large and significant. It's the losses that were the ones that were the ones this quarter. Okay, that's great to hear. Thank you. Thanks, Raimo. Thank you.

Howard Ma: And we have time for one last question.

Gregory Henry: Our next question comes from Howard Maugh with Guggenheim Securities. Please stay your question. Great, thanks. Greg, I have a question for you, just to drive the point home on a back half AR. I thought that your AR definition is based on contracted AR. So, I mean, I could be mistaken, but when you talk about the higher than normal amount of AR that's contracted to start Q4, wouldn't that already be faked into your reported AR today?

Gregory Henry: And quickly just on a related note, or when you talk about the back half expansions, is that, or the new AR being back half weighted, are you talking just expansions, or are you faked in at a good amount of net use, right? Of new from new logos, that's in there as well. Thanks. Yep.

Gregory Henry: Howard, I'll start with your second question first. So, we're, what's weighted towards the back half is the renewal. We have significantly larger renewal pool in the second half than we did in the first half. We knew that coming into the year. We've talked about that previously. We tend to upsell at the time of renewal. It just gives us a better opportunity from an upsell perspective to drive new business. But we are not assuming higher upsell rate, higher, you know, new logo is going to experience everything is within the range.

Gregory Henry: But again, that's why we're calling out this contracted ARR because that is material in this corner. And yes, we take anything at the end of a period plus 12 months forward. So, if you do a multi year deal, three year deal, when you sign it the first year and you look out 12 months, you may get into your two. But then when you get to the end of year one, beginning of year two, then you'll look into your three and take that value.

Gregory Henry: And again, during these contracts, all three years have different values. So, year one can be a million dollars, your two can be two million dollars, your three can be three million dollars. And depending on which year you're in, you'll pick up, you know, you might pick up a million at the signing of the deal. But you know, you still have growth from two to three million the following year and you'll get that as well.

Gregory Henry: That is the dynamic that's happening. So, these deals are done. There is it's 100% going to happen. It obviously has no revenue impact immediately, but we do have the ARR coming in Q4 from what's contracted a year or even sometimes more. It's super clear. I understand now. Thanks, Greg. You're welcome. Thank you.

Unknown Executive: And that concludes our Q&A session.

Matthew Cain: I'll now hand the floor back to McCain for closing comments. Thanks, operator. Thank you all for joining us. We look forward to speaking with you all again soon. Have a great day. Thank you.

Unknown Executive: This concludes today's call. All parts of my disconnect.