Q3 2024 Confluent Inc Earnings Call
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are bringing in the agenda to the eye where our customers can build their own rules just by typing in the English. Now, you can go on talk to the Minabar Shaxpa and say, hey, I want to go to this.
We have data streaming and data delivery pipeline requests to get the data processing for our customers.
We have models with data that is ready to understand the context of that particular user. Every data that is getting delivered in the easy goes to the conference for us. Also combine the data to provide this contextual chat base service for customers and that is to be the helpful for them, for solving the data in the process that they have.
Speaker Change: Welcome to the conference on 3rd quarter 2024 earnings conference call. I'm Shane Xie from Invest Relations and I'm joined by J. Kreps, full founder and CEO, and Rohan Sivaram, CFO.
Speaker Change: During today's call, Management will make forward-looking statements regarding our business, operations, sales strategy, market and part of positioning, financial performance and future prospects.
Speaker Change: including Stamins regarding financial guidance for the fiscal fourth quarter of 2024 and fiscal year 2024. These fall-games stamins are subject to risks and uncertainties which could cause actual results to differ material from those anticipated by these stamins.
Speaker Change: Further information on this factor, the call's actual results to differ is included in a most recent form tank you file with the SEC.
Speaker Change: We assume no obligation to update East Damage after today's call except as required by law. On this state of utilize certain financial measures, use on today's call, I'd express on a non-gap basis, and all comparisons are made on a yield of your basis.
Speaker Change: We use these non-Gap Financial measures internally to facilitate the facility analysis of a financial and business trends in foreign-turn-of-planning forecasting purposes.
Speaker Change: He's non-gap financial measures, has limitations and should not be considered in isolation from, or is a substitute for financial information prepared in accordance with gap.
Speaker Change: A reconciliation between the Skaap and Non-Gap Financial measures is included in our earnings press release and supplemental financials which can be found on the Iowa website at www.adindustrial.com.ail.
Speaker Change: And finally we will post a Confluent earnings report to higher website, Alftar Alpather, and Denmark. And with that I'll turn it over to Jay.
Jay: Thanks, Shane. Good afternoon everyone. Welcome to our third quarter earnings call.
Jay: Subscription of Revenue Group 27% to 240 million, Confluent Cloud Revenue Group 42% to 130 million, non-gap operating margin expanded approximately 12% at points to 6.3%. And I'm proud to report that total revenue grew 25% to 250 million, surpassing a $1 billion revenue run rate in just 10 years since Confluent was founded.
Jay: Thank you to three we hosted current 2024. The only industry that fully dedicated to all things devastating.
Jay: More than 4,200 people from 1,200 companies participated.
Jay: Making it our biggest and best current, yes. Data leaders from Mercedes-Benz are in G-North America, firecom 18 and it's centered joint beyond the keynote stage to discuss how conflicts that's at the heart of their companies.
Jay: and allowing them to push the boundaries of what's possible for their customers. In some of the most popular sessions focused on how companies leverage their streaming to power transformative AI use cases like creating customer chat bots, building AI and ML pipelines to detect fraud, and delivering hyper-first-sized AI customer experiences.
We continue to the excitement interest in use cases around Jenny, I growing across our customers and in the ecosystem of AI solutions providers.
Jay: Last week we hosted our first conflict of AI today. A one-day event designed to help our customers advance ideas into fully built AI applications.
Jay: In partnership with AWS and MongoDB, we brought together hundreds of attendees from companies like Google, PNC Bank, World Global and Rocket Mortgage. We joined expert discussions, interactive sessions, and then exciting AI hackathon.
Jay: At the event we launched the Confluent for Startup Sai accelerator program. This exciting new program is about powering early stage AI companies with the tools and mentorship they need to lead in the world's generate of AI.
Jay: Confluent for Startup's AI Accelerator Program provides startups with early access to Confluence-Lay to Stay-I tools, expert mentorship, and product credits from Confluent, Long GDB and Anthropics. We're committed to helping these startups create new breakthroughs in real-time AI.
We spoke about our relationship with OpenAI during the Q4 2023 earnings call when we discussed how OpenAI's team uses comploat to deliver real-time data streams. I'm happy to report that OpenAI is expanded their use of our data stream platform to help scale with the increased usage of their platform.
The momentum and growth further validate the strategic role of data streaming in the
Last quarter we also celebrated our 10th anniversary as a company. When we started Conplo, 10 years ago, the data stream was just emerging as a nascent paradigm.
Jay: and the Sivaram. What's started with the smaller group of companies like LinkedIn, Uber, and Netflix. Just rupting the status quo with real-time data streams has turned into a movement. Today more than 40% of the Fortune 500 rely on Confluence has set their data in motion.
We serve customers broadly across industries including 10 of the 10 top US banks, 8 of the top 8 global car makers, and 9 of the top 10 US insurance companies.
We see significant expansion opportunities across our customer base as we expand from individual use cases to the central nervous system for real time data.
Jay: Our growth in capturing this opportunity has gone through two distinct waves and is now entering a third. The first of these waves was built directly on the back of the open source traction. It was about to personalize and value with our software offering, completely platform.
That provided the bulk of our business for the first five years of confidence growth. However, we knew that for the long term platform we wanted to build and to capture the bulk of the opportunity around streaming, we needed to make streaming far, far easier to consume. This spurred the early investment into what fueled our second wave of growth, and we were able to build and to make a new development platform.
Indeed, even when we went public three years ago, our cloud business was a small percentage of our revenue. We were in the early stages of taking our cloud business to scale.
That being said, we strongly believe that the secular shift to cloud was presented a meaningful long-term driver of growth. And proud that our team has successfully executed our cloud vision and confident cloud is now more than 50% of total revenue and continues to outpace our Confluent platform business.
At the same time, Claude's our most frictionless path to monetizing the thousands of organizations using open source Kafka. With 150,000 organizations used in Kafka, we're just getting started. Already our cloud product comprises over 90% of our customers demonstrating its broad appeal as we continue to grow into this base of open source usage.
These first two labs aren't done. We continue to work to serve the broad base of coca users through compelling pricing and packaging optimizations for comploon cloud and comploon platform.
and a differentiated cluster types like Enterprise and Pray, and they've led us to deliver data streaming offerings for all customers and workloads with low TCO and strong ROI. A recent acquisition of warp stream has a third deployment mechanism of BYOC to this portfolio.
Jay: Workstreams at Bring Your Unclad Model offers a deployment model midway between fully managed and self-managed and opens up opportunities in a set of high-volume high-tech customers that form a good chunk of our digital native customer base.
Warpstream is BYSC done right, so directly on top of Optic Storage, Warpstream Zero Discard Architecture enables zero ops auto-scaling while making it 5 to 10 x cheaper than other alternative systems.
Jay: An unlike traditional BYSC offerings, workstream prioritizes security by avoiding break-class access to customer networks and systems. Conpload is now the only company with the data streaming offering for everyone, regardless of use case, cloud environment or deployment type.
Jay: Coctus, the foundational layer of our data streaming platform, and could sustain our business for many years on its own. But it only represents a portion of the opportunity ahead of us. We believe our third wave of growth comes from being a complete data streaming platform. A one stop shop for all real-time data needs.
Jay: To do this, we are bringing together the key capabilities to stream, connect, process and govern continuously flowing streams of data. So organizations can power their next generation real-time applications.
Jay: Over the course of the past year, we have been on our most aggressive procedures of our vision since we started the company and that is starting to yield strong traction.
Major New Product in Pricing Innovations like Flank, Table Flow, Freight Clusters, AI Model, Infference and New Connectors will extend our already significant category leave. And we can change these strong traction across our customer base. For GSP portfolio, continue to grow substantially faster than overall cloud revenue.
One of the areas where most excited about is the opportunity around stream processing and patchy flank. Let me share two examples of how customers are using Flank on Confluent Cloud and Confluent Platform.
One of the largest private companies in the US mid west grocery chain with over 20 billion and revenue is using confidence fully managed blank offering to accelerate the growth of the Z-commerce business.
for Critical Driver of the Company's revenue. This retailer had already overhauled its e-commerce solution with Complement Cloud and wanted to integrate stream processing for all the cost of the top excited built inside its digital environment.
including pricing promotions and inventory details, without any lag in production.
So the retailer implemented Confluent Cloud for Apache Flank to combine and enrich streams of data flowing across hundreds of retail stores. Its website and mobile app and third-party fulfillment partners like Instacart.
This data spans more than 100,000 product skis and tens of millions of orders. With our flink offering, this retailers real-time inventory and pricing are accurate and customized to each local market, so the company can consistently deliver a trustworthy and personalized shopping experience to its customers.
Since working with Conflon, it has granted Xie commerce business by 700% and can stay a step ahead of the National Gross Rechains it can be with every day.
A Fortune 50 telecom company in the US and a conflict platform customers using our offering for real-time analytics.
Initially the telecom provider used an alternative stream processing tool which struggled to meet the demands of real-time data processing.
Jay: This affected how the telecom's enterprise customers can serve consumers and lead to higher trim.
Jay: To the telecom provider, deployed Confluent Platform for Apache Plink, shifting processes the left and rolling out thousands of Plink instances across its infrastructure to run real-time analytics on data earlier on the data pipeline before it moves downstream.
Blink processes and analyzes data such as network performance to help its customers deliver consistent personalized experiences to consumers and network visibility for threat detection.
Jay: By using Confident Platform's Flink offering and tapping into our team of Flink experts, the telecom provider has saved tens of millions of dollars in significantly reduced term, boosting its overall margins.
In closing, I'm pleased with our strong third quarter results and I'm incredibly excited about the opportunity ahead of us. I'm even more excited for the next 10 years. We're at a prime position to win the $60 billion data streaming category. With that, I'll turn things over to Rohan to walk through the financials.
Rohan Sivaram: Thanks, Shane, good afternoon, everyone. In Q3, we drove Robas Toplan Growth, record cross margin, and another positive quarter for both non-gap operating margin and free gas flow margin.
These results demonstrate our market leadership in data streaming and our commitment to driving efficient growth over the long term. Q3 subscription revenue grew 27% to 239.9 million, exceeding the high end of our guidance and representing 96% of total revenue.
Jay: Confluent platform revenue grew 13% to 110.1 million and accounted for 46% of subscription revenue.
Jay: The strength was driven by healthy demand for a controlled platform in the financial services industry.
Reserved 10 of the top 10 US banks with an average ARR of greater than 5 million. The substantial majority of their ARR is attributed to consumer platform as these banks are still early in their move to the cloud.
Compton Cloud Revenue Group 42%, to 129.8 million, and accounted for 54% of subscription revenue, compared to 48% of the year ago.
Resolve consumption stabilization in our digital native customer cohort during the quarter.
Well the remain cost conscious, we will please with the consumption growth trajectory of our largest cloud customers. Many of whom are shifting their focus to implementing new use cases and adopting RDSP products.
Q3 Cloud revenue, also saw a one-time low 7-figure revenue benefit, adjusted for the benefit, we still have to exceed the consensus expectations.
Revenue from DSP continue to grow substantially faster than our overall cloud revenue.
While monetization remains in its early days, we are pleased with the adoption of new products by a large cloud customers.
19 of our top 20 cloud customers have adopted at least one DSB product and 13 have adopted products across all three categories.
Additionally, multiple of customers continue to grow at a faster clip and exhibit it a much higher NRR profile.
Turning to geographic makes up total revenue, revenue from the US Group 28% to 152.4 million, revenue from outside the US Group 21% to 97.8 million.
Jay: Moving on to rest of the income statement, I'll be referring to non-gap results unless stated otherwise.
Jay: Subtraction Gross margin reached a new record of 82.2% up 210 basis points, while total gross margin also reached a record high of 79%. Well above our long term target.
Our Grossmatchen outperformance continued to be driven by strong, confident platform margin, and improving unit economics of our confidence-loud offering.
Jay: Turning to profitability in cash flow, operating margin expanded approximately 12 percentage points to a record higher of 6.3%. Representing our 9th consecutive quarter of 9 points or more in margin improvement.
Freecastle margin of 3.7% was also record, expanding 10 percentage points. This marks our third positive quarter for both operating and freecastle margins. And reflects our deemed cracker record of driving margin expansion setscale.
Net income per share was 10 cents for Q3 using 353.6 million diluted weighted average shares are standing. Fully diluted share count under the Treasury stock method was approximately 366.8 million.
Jay: and we ended the third quarter with 1.86 billion in cash, cash, key relance and marketable securities.
During the quarter we acquired Warstream, the further differentiated data streaming platform to include the BYOC native form factor.
Warframe is particularly well suited for digital natives and high scale workloads with relaxed latency, requirement such as logging, observability and feeding data lakes.
In fiscal year 24, we do not expect war-frame acquisition to have a material impact on our financials.
Over time, we expect WorldSream to be a pro driver, as it expands our reach into more workloads across customer segments.
Turning now to other business metrics.
During the third quarter, we saw notable increase in overall wind rates for new business, both year-over-year and sequentially. A wind rates against smaller startups were well above 90% as we compete favorably with our cloud native complete and ubiquitous platform.
This translated to sustain momentum in new logo acquisition and customer expansion.
Jay: Total customer count growth accelerated to 16% and ended Q3 at approximately 5,680 representing a sequential ad of 240 customers.
3X is a sequential ad of the year ago quarter. New customers include a top 3 US airline company, a Fortune 50 car maker, one of the largest online milk gift providers, a leading lifestyle retailer, one of the world's largest online furniture companies and many more.
The network affects the support data streaming platform, continues to take hold in our large customer base. We added 40 customers with 100k plus in ARR and 7 customers in 1 million plus in ARR, bringing the total to 1,346 and 184 respectively.
Jay: Our 100K plus ERR customers continue to represent more than 85% of our revenue. Our new $1 million plus ERR customers include customers from our variety of industries, including healthcare, travel and retail technology, financial services and more.
Q3 and RR was 117% while GRR remained above 90%. We saw many of our large, digital native customers shifting their focus from cost optimization to new use case implementation and adopting DSP products.
This friend has continued in talktober which we believe will help stabilize our NRR around current levels in Q4
Jay: Turning now to guidance, we are increasing our Q4 revenue outlook in addition to raising full-year subscription revenue, non-gap operating margin, non-gap EPS and free gas to the margin.
For the fourth quarter of 2024, we expect subscription revenue to be in the range of 245-246 million, representing growth of approximately 21%.
Non-Gap operating margin to be approximately 2% and non-Gap net income per diluted shred to be 5 cents.
For Spolia 2024, we are raising subscription revenue to be in the range of 916.5 to 917.5 million representing growth of approximately 26%.
Jay: Non-cap operating margin to be approximately 2%.
Non-Gap, net income, but diluted share to be 25 cents and free cash flow margin to be between 0 to 1%.
Looking back at the last 10 years of the company, we have established data streaming as a major category in the text act. As the data streaming pioneer, we have continued to extend our market leadership by delivering world-class innovation and business outcomes for our customers.
This has enabled our growth and profitability journey at scale.
We exceeded 1 billion revenue around rate in just 10 years since inception, including growing confluent cloud revenue around rate from less than 50 million to more than half a billion in just 4 years.
Jay: We saw 5,680 great customers, including more than 40% of the Fortune 500 across a variety of industries.
We sustained positive non-gap profitability metrics in Q3 with 79% total gross margin well above our long term target threshold.
Jay: 6.3% operating margin, now within the range of our mid-dome target and pre-casploitation at a record margin of 3.7%.
and for the first time in Don Flynn's history we expect to exit 2024 with positive non-gap operating margin and positive free cash flow margin for the full year.
These are fantastic milestones for a 10-year-old company. I'd like to thank our employees and partners for your important contributions and our customers and investors for your continued support.
Lookin' ahead, the intersection of cloud, data and AI, reinforces our vision of companies becoming software and AI.
Honacing the power of data streaming will be more critical than ever for companies to deliver differentiated products and services, ultimately driving their success in the AI era.
Jay: The secular deal when puts us in a stronger position to drive durable growth while generating significant pre-casual overall long runway.
We are more excited than ever about capturing our market opportunity ahead.
Jay: Before turning to Q&A, I would like to announce that we will host invested in 2025 in San Francisco on Thursday, March 6th.
Management will provide an update on driving profitable growth for the next few years. Please save the date. Now, Jay and I will take your questions.
Thanks Rohan, to join the Q&A, please click the raise hand button on your screen. When selected for Q&A, we ask that you live yourself to one question and one follow-up.
and today I'll first question will come from San Jose sin with Morgan Stanley, followed by RBC. Sanjay, please go ahead.
Sanjay: Yeah, thank you for taking the question and congrats on a very solid 23, particularly the revenue acceleration and the margin expansion that you're seeing over year. So, Jay, I guess when we look at the past couple of quarters, it's been sort of bits and starts with the digital native group and it looks like those stabilized.
Are you at a point where you're certain to see work confidence from your digital native customers in terms of bringing on your use cases, getting past optimization, or is it still kind of touching go quarter by quarter?
Yeah, look, I think each quarter is kind of mixture of optimization activities in new use cases. You know, I do feel like we felt like...
in conversation with the largest set of customers, they've kind of done the level of what they need to do in terms of larger changes in their environment. So we did see better growth this quarter and until that puts us on a good trajectory going forward. So yeah, I do think we feel pretty confident about that segment and we think about the year ahead.
and I really appreciate the two customer examples on Flank.
Speaker Change: As we look at kind of this stage of where Flink is, do these kinds of sort of represent the early sort of beta customers that are now exploring these use cases and where are we in terms of getting like the broader base to start to onboard Flink use cases in their environments?
Speaker Change: Yeah, yeah, I think they've represented her. So we've seen, you know, a ton of enthusiasm, we've had a bunch of product unbox as we've released the private networking support across some of the clouds and getting it out to all of them. We announced the programmatic support, so you can write it direct.
and a Java and Python programs and that'll be going through EA and GA. And so yeah, we're starting with ramp of production use cases. And these are some of the early ones. It was nice that we've been able to land not just confluent cloud customers but also a platform. Link customers even though that product is.
and still in limited availability and just going towards the G.A. And so yeah, we're actually seeing a ton of enthusiasm and the customer base and we're really excited about where that takes us in the year ahead.
Alright, that's it for me. Great to hear. Thanks.
Speaker Change: Thanks, Sanjay. We'll take on next question from Matt Hepper with RBC, followed by JB Morgan.
and all of my congrats as well.
Speaker Change: and maybe he is a focus-hand just question, you know, it's read the CDX celebration cloud and the digitally native stabilize.
is my question is on the go-to-market. You guys may change this a turn-the-ear. It really looks like they're paying off in terms of the kind of record customers that you guys keep adding.
Speaker Change: Can you talk a little bit more about that process and maybe comment on the level of consumption that you're saying. You're trying to land fast and accelerate those consumption trim. Maybe talk about what those customers are looking like when they land.
Speaker Change: Yeah, I'm happy to do that. So, you know, one of our goals this year, both in what we were doing with the sales team and sales compensation, as well as on the product, lead side of the building.
Speaker Change: was to really broaden our reach into the large set of open source Kafka users and land more customers more quickly. And yeah, I think that's an ongoing journey.
We've made it ton of progress this year and we're really pleased with that. I think we'll continue to work on that in the years head. We feel like look, there's 150,000 organizations using Kafka. We want to go get them all.
So, yeah, the sales focus on these lands has been really important. It's both about numbers, but also about targeting. I think we're much more intentional about the customers we wanted to land with. We have this idea of the conflict of 2000, which are the highest propensity or potential accounts.
and those are the ones that we're targeting on the sail side.
On the product list, I will fluctuate and we try out different things to try and land more customers, but also track them through and making sure that we're getting to high ROI customers, not just landing university students with their projects, but really getting into the great companies.
and so that total customer count will fluctuate quarter to quarter as it has, but you know, we do think we're on a better trajectory in terms of landing more customers, you know, in a faster pace.
Speaker Change: and then of course we follow these customers all the way through their adoption. Our goal was getting to more customers earlier in the drain. We definitely done that, we've now been able to see a lot of these companies kind of start that ramp towards production usage and...
you know expansion out into other use cases and so we feel pretty good about the overall trajectory of these organizations. So that's definitely a positive factor heading into the next year.
Speaker Change: That's great. Yeah, I feel like a lot of momentum down the expansion side too. I guess you know Jay you mentioned your prepared remarks. Sort of thing early Jenny I demand. I think you mentioned some of those comments that current.
Speaker Change: Can you talk about how that's actually showing up in the constant work conversations? Is it just a chance to more consumption, maybe a little bit more specifics on how you're kind of identifying that within your base?
Yeah, absolutely. So I mean, there's two in fact one is kind of growth in the set of AI providers, right? Open AI being an example of that. The second is a new set of use cases in the wider enterprise customer base.
Speaker Change: You know, it's really about delivering data to these AI applications. And I think there's, it's kind of two things happening. The initial thing is instead of use cases really around that. I think the larger push that this is leading companies towards.
Speaker Change: is more thinking and investment in data infrastructure overall. You know, all of this I think takes time. You know, I know when I've talked to investors.
Some people felt this is going to be like a immediate pump in every infrastructure lab. I think we were very upfront that we didn't think that would be the case.
When I talk to people now, some people think, you know, these AI things we've never been materialized
I don't think that's scary either. There's something very real happening. There's definitely a set of use cases and applications in customers. Different customers move at different bases, you know, the tech companies are faster.
You know, the more conservative enterprises are a bit slower, but there's definitely a rise in the news that of use cases around this, and I think that's a very positive thing for us.
Speaker Change: and the next year.
Great, we'll take our next question from Pendulum Borough, which J.P. Morgan followed by Barclays.
Hey, thank you so much and I've come to the quarter from me as well.
J. Wanda, ask you on Robstream, talking to your channel, we kind of picked up a lot of the change that I'm locked by, Robstream, seems like.
Speaker Change: But our question in general, is that broadly true? Is workshop and starting to bring you into conversation, especially as it relates to migration of open source Kafka?
Yeah, absolutely. The reason we thought that this was appealing was there's a set of large users of open source where the wholesale migration to some fully managed cloud, things actually a very big jump and often hard to accomplish in one step.
Speaker Change: Something like this that has a nice car savings.
keeps the team running at kind of in place, but allows you to get kind of halfway there is really beneficial.
Speaker Change: and we think that this could help us open up some of these larger digital native companies that have been on the open source for a while.
In some cases since before, conflict, the company even existed.
and start to bring them into the fault. And we're really excited about that. We've started to see some progress in some of those companies. Yeah, these are bigger accounts, so it takes time to land them, but we're pretty confident in where that's going to take us in the year ahead.
and one for Rohan BDR, seems like don't take a little bit with your cloud kind of accelerated. So I'm trying to control...
and the two right, is whether or not they can expansion from the non-flow portion or whether the core in organic cloud trends a little bit lagging if you take out works.
The Pinch of the Thanks for your question. Listen, when you really look at the results for Q3 and you look at the cloud results, actually, very pleased.
with our cloud growth with the business 42% and it's a half a billion dollar rental business.
and when you double-click into the NRL dynamics of it.
Speaker Change: and then the health of the install base continues to be very solid, RGR.
Speaker Change: of the overall business as a student of a 90 percent. There are two drivers of performance that we call out in the especially in the cloud side for Q3. That was...
You know when you look at that digital leader customer base resource stabilization and consumption.
and second for some of our larger cloud customers.
Speaker Change: We did see that these customers are taking up new use cases and adopting the DSP. Why is that important? That's important because these two friends have kind of moved into Q4. And that's why I made the comment around stabilization on NRR around the current levels.
We are specific questions, I mean you know it's very marginal, so not a whole lot to call out there with respect to the move from 18 to 17 but what I'll call out is you know the couple of drivers that we are entering you for with just as confidence around the stability of an error around these current levels.
Speaker Change: Yeah, and what you thought you thought when you think about the trajectory that come longer term trajectory, you know, I think we feel...
You don't really excited about this set of product investments. I mentioned this in the prepared remarks that this has probably been the most aggressive period of new product development and release over the last six years in half.
and Conflict, Sister-in-More lessons have sprounded.
and I think that's now starting to come through fruition. And we're seeing really good signs and how that's being adapted with our customers. A lot of work to do, but when we think about that longer trajectory, I think that's a really solid driver for us, of expansion and the customer base.
Yadah, obvious use case for all of these is growing from just this pure Kafka usage in the customers to a broader platform that, you know, not only has more items you can spend on, but actually allows you to address a set of use cases that would have been inaccessible otherwise or too difficult.
Karikong Rethlong.
Thanks. Alright, thanks. Thank you, everyone. We'll take our next question from Rhymo Lenscha with Park Leaves, all of our Deutsche.
and the first question is, how many of you have been working on this?
The actually a bigger opportunity for you guys to remember when those guys started out they were like okay We want to be even the more modern Kafka or like you know be more in serverless et cetera Is that kind of a theory actually like a broader opportunity for you in terms of like
using that more than where you were at the moment. And then they've won for Rohan, like you called out the little bit of extra help you got this quarter in cloud.
Can you kind of help us a little bit because Cloud and theory is like subscription like how do you get that as a one-off thing and that will be helped up. Thank you.
Yeah, yeah, let me try to draw that too.
You know, um...
The way I would say this, you know, open source Kafka is a very good kind of open source project you can take it and download it and use it. You know what we look for is in each of these deployment models that we try and support, you know, do we have the best possible product in that area?
So, if we think about our self-managed customers, there's a set of things that they need. You know, we've built an offering with Confluent platform, which really good at that.
When we look at a fully managed cloud offering, we put a ton of investment in Corrack, which is the back end for that. It's an amazing piece of software. It's extremely sophisticated in making something that runs itself balances data, expands, and all the really hard things in a full cloud service.
When we looked at this kind of bring-your-own cloud opportunity, we thought, well, you know, there's something there. We thought there was a segment of the customers that would be easier to access if we added an offering there. We looked at, like, hey, you know, should we take a little platform and try and turn it into that? Should we try and take Kora and try and...
and the customers are counting in some way. The reality is neither of those would have been very good. Like we could do it, we could check the box, but it wouldn't really be a good product. What made us excited about workstream is they'd actually done that in the right way. They actually had something that was designed from scratch for that deployment model.
and that's kind of a deep enough architectural divide but I think you need to do it that way to have it really good product.
Speaker Change: and so now we feel really good where we have something that's best in class across each of these deployment models. And so across customers, across customers, use cases across different parts of the company, we can now really span everything they want to do in the streaming world. You know, kind of without hesitation or reservation.
and I think that's a really powerful position to be in the next. That's always been our goal with customers, you know, make this something that's a ubiquitous technology across the business.
Speaker Change: I'll take the second part of Rimos question.
Remo has a potential for the one-time revenue benefit. One of our existing customers had plans to basically expand into a new international market, which did not end up materializing. And the result we took some revenue at the end of the quarter as a new spread.
Speaker Change: As we speak, the customer is a very strategic partner of ours and we're working on multiple use cases with them. So if you take a step back and I know you've commented on the Q3 performance, our Q3 performance, which was race-solid, the underpinnings of that performance was at say two time range drivers.
The first one was the stabilization of the digital native segment.
and the second one was some of our larger cloud customers actually adopting DSP and starting to look at net new new cases. So this third benefit which you call out was one time, but if you adjust it out we still handily be done consensus expectations.
Okay, thank you very much. Alright, thanks for your time. We'll take our next question from Brett Zellnik with Boach Bank, followed by William Blair.
and good to see you all. It's great to hear all the excitement coming out of current and the improvements you're seeing in win rates. And I appreciate it takes time for wins to turn into revenue. But if it's too early to be characterizing what you're seeing out there is perhaps green shoes. And how does it inform?
You're thinking about sales capacity as you gear up for next year.
Yeah, I can address some of those in raw, you may want to address them as well. So yeah, we've definitely seen positive signs in the customer base. We don't typically draw that line too far forward, so we don't try and make some kind of big pronounce moon about it.
Speaker Change: you know, IP spending next year. But yeah, we've seen, you know, I would say stabilization and
Speaker Change: may be some acceleration and investments.
Speaker Change: in the digital native segment which is very positive. We've seen continued expansion across the broader base of cloud customers which is great.
So yeah, all that gives us confidence.
When we look at the sales capacity that we have in place, we feel very good about that.
Speaker Change: Ciao!
you know this is a quarter where we saw you know kind of good ramping of new sales reps, you know lower than target attrition you know overall that puts us in a good position as we think about what we're entering next year with in terms of both.
You know, our sales motion and costumes as well as just ramp sales reps to go execute.
Speaker Change: April your meal.
Thank you very much. Still trying to figure this new thing out.
Speaker Change: and we think about the range of outcomes for next year. I appreciate that you're not giving us guidance yet, but is there anything you can tell us about perhaps the visibility that you have coming out of this Q3 versus the last couple of years where you did give us an early look?
Speaker Change: and I mean it would seem to me that the bias would be towards acceleration at least from the exit rate that you're guiding your for Q4 for 21% subscription growth. How are you thinking about that and how should we as you know as we begin to lock down models and project next year? Think about that. Thank you.
We're not early guiding for fiscal year 25. I'll say which is very consistent with most of the subject companies out there. But what I'll tell you is...
The momentum of the business in Q3 was solid.
Speaker Change: We entered you for with a similar momentum which shows up in our guidance.
Speaker Change: and we also spoke about stabilization in our NRR. So as you kind of look at the second half of the year in general, we feel good with our VR. So, do your question around looking ahead? You know, I'll kind of re-threat a couple of points that you made.
Speaker Change: I mean, in general, you've heard us talk about it.
Speaker Change: and the SPS-Binabake Photos for the last year.
with respect to the number of product innovations we've had this year has been that I would say the highest in the history of the company.
and we're seeing good adoption with respect to a DSP product.
and 2025 is where we're expecting monetization and when you look at the different DSP products.
All three of our DSP products be connected, the governance or be-stream processing, and then there are early stages of their escorts.
So that's one area of growth I've ever felt ahead.
Speaker Change: The couple of others that Jay Briefly touched on was January, although timing, exact timing, the stability we did, but...
We feel that in general streaming as a category will benefit from Jenny I.
and then we have a couple of other ones like table flow and Fedram which are also lower in the list but again go drivers. So overall this is more of a go drivers as we look at next year but again we will be providing a more formal guide for 2025 and out you for talking.
Speaker Change: I'm just so much to be excited about, keep up the great work. Thanks guys.
Speaker Change: Thank you, Pat. We'll take on next question from Jason Aether with William Blair, followed by Wolf Fargo.
Yeah, good afternoon. Thanks Shane. I could see everybody. My question is on the Q4 guide. It implies a sequential of Rohra.
on the revenue that is well below typical seasonal patterns that are the global last few years.
and I know you're a better company now, but is there something specific to call out in Q4 that might cause a lower sequential growth rate than normal?
I just want to unpack that a little bit. Yeah, you want to check that, Rohan. Yeah, happy to Jason Goodsign as well. Yeah, so for our Q2M assuming your question is specifically around the cloud revenue.
Total subscription revenue of like a 2.4% sequential versus the year go 7 and the year before it was 12 and key 3 to keep 4.
Speaker Change: Alright, yeah.
So there are a couple of puts in takes as you look at, I mean, obviously when you look at our Q3 performance, we feel very solid and Q4 guide is also solid. I call them two drivers in Nuskong, one was in general, Confluent platform business tends to be lumpy.
and a purely because about 20% of revenues recognized upfront.
and the timing of some of these larger deals can have an impact so that's something that I call doubt in the last call.
and second, OHS smaller driver is, you know, the one-time benefit that we spoke about in Q3. Make it a little bit of a tough compare for our cloud business.
So when you isolate the cloud business and you take out that one time benefit, it's very much false within historical trends and more normalized patterns.
So that's probably the second driver, but in general if I kind of take a step back.
You know, we're seeing this momentum with respect to some of our larger digital native customers adopting new use cases and adopting DSP. We just don't want to get ahead of ourselves and we want to be put in put our outlook as we look ahead.
All right, now one quick follow up on maybe for you Jay just talk about the federal business. We've heard kind of...
You know, through the great fine of some other companies that talked about it, but it seemed like federal standing was kind of weaker than expected for a lot of companies in Q3. What did you guys see in the federal vertical? I know that's an important area for you guys. Did you see some of that kind of budgetary pressure that others saw?
Yeah, yeah, you know, federal was reasonable and is a decent size chunk of the business. Yeah, to limited to day because it is only complemented platform. So we're still kind of waiting to open up the complement cloud side of that, at which point I think we would see a bigger.
Speaker Change: Overall, impact both positive and negative with the kind of trends you're describing. So yeah, I would say it was not particularly not where the, you know, we saw reasonable performance, but you know, nothing to write on the back.
Thank you.
Thanks Jason, we'll take on next question from Michael Turnn with Wells Fargo, followed by Openheimer.
Michael Turnn: Okay, thanks very much. Good to see everyone. Jay, appreciate the video, and start commentary throughout the call.
Michael Turnn: is helpful. It's hoping we could go back to AI and specifically use cases you see there for streaming.
Speaker Change: Where do agentexolutions which were getting whole host of announcements around fit within that discussion? It would be great to just keep your view on.
I'll this AI focus for getting everywhere impacts competitive positioning for confidence.
and the overall DSP landscape. Yeah, it's great. Yeah, so there's two primary use cases that we're seeing around AI. One is really gathering all of this context data for the AI. So all the enterprise data that wants to be used in decision making.
The second is a flink use case, which is actually taking some of the processing that you want to run as a background task.
Speaker Change: and actually operationalizing that turning it into something that kind of runs continuously. Every time something happens to the business, it reacts or processes that.
and very much the kind of a gĂȘn chick, you know, background work that you're talking about.
That's earlier in terms of what we've seen. I've been looking at customer adoption patterns. I was saying that that whole category of use case is a little earlier. I think it's very dependent on the quality of the models.
We think that's going to be a big thing over time and we think we're very well positioned to do it.
Speaker Change: I think ultimately the goal for AI is to build these chat box. It's actually to take some of the background work in the company and turn it into something that just happens. And maybe there's something that's not even a human oversight or maybe there's not. But it's something that's just kind of working in the background.
Speaker Change: If you think about what does that translate to in terms of the infrastructure or computational model, it's very much stream processing. If you think about the kind of more work that humans do,
and the other two are sitting there and answering emails that are reacting to new customer orders that are doing whatever it is that background processing. So I think having something which takes that directly integrates.
Speaker Change: LLM models with some of the AI model inference work that we announced at current allows you to run that in a way that's parallelizable, that's fault-power-out, that's scalable, that's understood and that integrates this context data that you've got to, and it's very compelling.
So I would say that, that, you know, I would think of this as, you know, a couple of, um,
Directions of Growth Around AI. You know, one is selling to the AI companies. That's kind of often running. The next to loan is these, you know, enterprise use cases around rag. You know, I think that's going well and will be durable. The last is this kind of agent use cases, which is the most nascent. But I think actually maybe the biggest opportunity. And probably the thing that's streaming is...
Speaker Change: The most well suited to where it's kind of the natural model for running that thing. You know, that's, I would describe that as unproven but we're very excited about it.
Speaker Change: sunscreen.
Speaker Change: is giving that 25 shaping up business fairly significant product cycle for conflict as we lay our own.
DSP, Warp Screen Mother Capability. So, wondering how you think about or how we should think about immersion progression as these are offered to lay around. Can you keep the efficient growth motion going forward alongside the innovation or digital we're thinking about the balance between that too? Thank you.
Michael, when you really look at the last eight or ten quarters for us, we've improved our operating margins by more than 40 percentage points.
So our philosophy around growth and profitability are a sufficient growth.
is really part of the DNA of the company. So every key decision that we make is based on annual and based thinking. And that will continue, you know, not only in the 25 and 25 and beyond, so that's not going to change.
So, as we think about next year, we'll continue to have the same philosophy. That is, grow and profitability. How can you drive efficient growth? And then I'm going to basically take a eye out the ball on that front.
Yeah, I think that's exactly right, and one point I would make that specific to that. I think what Rohan said that this is kind of a discipline in terms of looking at it.
Speaker Change: and the physician's seat throughout the company. You know, I think it's very important point. You know, but I think you are specific to the around, you know, as we're adding these additional product capabilities, you know, has that impact things. I think it's important to understand that the investment around the new products.
including the training of sales people, getting people to be able to sell these things.
That's all happening now, right? So you kind of, you put in all the effort, you build a cloud platform that can operate many different product areas. You make the investments in engineers to build out the capabilities, you put in all the tools to be able to track and drive revenue targets around these different things. You train up the sales force.
You spend a lot of time on these things, there's still nascent businesses, right?
Speaker Change: and then, you know, as it comes to scale, that's obviously a very positive thing. But, you know, to some extent we're kind of daring that cost now. You know, we feel good about that trajectory and obviously as these are, you know, DSPs, a larger contributor to the overall revenue numbers, you know, then, you know, those investments.
or less kind of an added weight and more, you know, a natural part of a business. So I don't know if that's clear, but that's the way I would think about it. It's not like we're thinking about, oh, we're going to start investing next year to make that true. You know, we have been investing for some time, you know, on the R&D side for several years, you know, on the go to market side, certainly, heavily this year.
Clare me to Ruffle. Thanks. Great. Thanks Michael. We'll take on next question from East Thai Kitchen with open hymer. Follow by me soon.
Speaker Change: Thanks Shane and hey guys, nice results great to see this. James also with you more of a go-to-market questions, is too hard for us as well.
Do you still see a lot of little hanging foot and improving your gut on our kit motion? And maybe tie to that clearly with DSB becoming that bigger focus for you. How do you think about the changes you need to implement in comp next year to bidder for you have to find to a year for go around this.
Yeah, yeah, you know, look, we feel really good about the set of changes we made. You know, so this year was a very aggressive adjustment.
Oriental Cloud Business around consumption to drive broader reach to enable us to actually incentivize some of these individual DSP components of the higher rate. You know, that is called out a radical shift.
Heading into next year, I don't think we did any kind of radical shifts. We've got some tuning each year where we look at, you know.
and we tweet this thing, can we tweet that thing? Well, there's playing it out that we'll do, but I think it'll certainly be a smaller thing. I do think that as some of these DSP components come to maturity in scale,
It does open up a new motion around a directly landing use cases. If you think about conflict with emotions, it's been primarily an open source up cell where you take people who are interested in vodka.
There's better Kafka, there's other components around Kafka. You know, I think as we have this full set of capabilities to capture stream, process, connect, transform, and govern, you know, real-time data, there's suddenly a whole set of business problems. You can go after much more directly.
and so I think that opens up another vector for the team to get the attack and expand within a lot of these customers.
Speaker Change: I think we'll still land in areas where there's a Christian round Kafka, but I think this kind of gives you another way of going to market. So I think that's something we'll build over time, not comprovated, but that just makes it, you know, give us another path into use cases.
Make film.
Second question is on the win race, I think you mentioned that the win race is actually increased this quarter if I'm capturing the comment correctly
But you also commented that the win was against small vendors more than 90% If you got the specific area of the booth or the also info... Guys, we're saying both that we saw very strong win rates overall And then there's been questions on this point, I think we specifically called out, you know, hey, like really strong performance well about 90%.
Speaker Change: and you don't get startup competition.
Okay, next time I'll take you so much.
Thank you. We'll take our next question from Brae, Moscow is with Njshuhal, followed by DA Davis.
Okay, thank you very much. The net new, confident, cloud ARR is higher than any other confident court that we've ever seen and that includes.
and your season is strong Q4 periods and it's an impressive quarterly performance regardless but Rohan, can you say whether or not this would be a record in that new ARR quarter for a compliment if we were to exclude that one time revenue benefit that you called out?
Rohan Sivaram: Yes, Greg, the one-time revenue benefit that we call out what I said was, you know, if you're just out, we still handle EB data expectations.
and when you really double click into the performance, which is the vast majority of the driver of the performance.
is stabilization in the digital native segment from a consumption standpoint and the net use case in DSP adoption for larger cloud customers.
We've not broken down that one time exactly, but what I can tell you is if you adjust for that, we still very handily beta expectations and the primary drivers were the first to that I called out. Hope that helps.
Speaker Change: Okay, thank you. And then you spoke earlier, Jay about workstream and potential open source conversions. But I'm wondering if you also foresee many conflict and platform customers adopting work free potentially over the medium term, whereas perhaps the otherwise wouldn't have moved away from their on-prem deployments anytime soon.
Yeah, there's certainly an opportunity for conflict platform customers that are self-managing the cloud to have kind of a progression towards, you know, a more fully managed cloud type offering.
and we see that as a positive thing as well. It's not the initial target set of customers, but yeah, over time that may be a deal.
Speaker Change: Great, thank you.
Thanks for all the good next questions from Rudy Kelsinger with the Adavis and Followed by Needle.
He has thanks for taking my questions. Rohan, first of all, he's very sharp roast margins. Looks like the fact that he's been exposed to the figures from that one time revenue 2020 that there's bits in back. So, it's 80 to percent. Kind of a good run rate. Go forward with just what it incremental roast margins look like on the DFC products as rather than the most sharp and then more meaningful next year.
Yeah, let's take that road.
Rohan Sivaram: Yeah, sure, I'll have you to dig it
Rory, the Gross margin profile for the business obviously, Redout Gross margins, funny look at subscription gross margins.
Speaker Change: So there are obviously two components.
Contra and Platform, Software Type, both Margin and Fairly Consistent, would have been a bit of time. So the variable isn't the cloud size and we've consistently improved our cloud margin over time. And I mean, I've written maybe three categories, right?
What one category is in general with volume and with more scale, you get efficient. So that's one.
The second area is that there's been this focus around multi-talent and as more of our business becomes multi-talent which includes the DSP side as well, larger DSP products, right?
and then we'll go to the next one.
Okay, then as followed by appreciate Tom and Tom and Jerry and Windrakes. I guess that's that comment on Windrakes. I guess you include...
Do you factor in renewals where a current customer considers a small startup or going back to it and so is where when you calculate this win rate, it is not just maybe common in growth sharing growth retention trends, but less, you know, we do include renewals in that.
Yeah, and I do look good with the rules, but it would be equally high and not clearly in the rules. So it's not like we're padding it with the rules for sure.
Speaker Change: Thank you.
Speaker Change: Great, we'll go to meet him, Mike Siko for our next question, followed by Cowen's last question. It just a comment really briefly on what Rudy said, you know, to underline a little bit of what Rohan was saying, yeah, we don't anticipate the DSP growth to be a significant headwind.
Speaker Change: and the products are largely multi-tenant and we see that as a positive factor, we take and cost into consideration with designing these things. So I know often new cloud products kind of come in upside down and then eventually write themselves, you know, we'll think they'll be a big aspect of that before we're good.
Great, go for a mic.
Speaker Change: I just wanted to cycle back to the strength that we're calling out this quarter and into October now for those digital made of customers.
When did you actually start to see that behavior shift? Just because I know if we cycle back a quarter ago that...
and Chris spoke its unauthorization was bleeding from June and tissue life. So, when did that start to show up as far as that cohort that you're speaking to with the tissue life?
Speaker Change: Yeah, yeah, do you want to speak to that wrong?
No, I mean
There was, you know, typically my, when you look at consumption, it is also a business that's driven by momentum. So you did not see this like one particular data we were interested, but in general we did see a couple of things.
The first is, you know, just Jay called out a year in the call, some of our larger customers. We feel that, you know, every customer kind of looks at optimizations, you know, for some of our larger ones, that's actually behind us. That's something that we saw and that happened progressively through the quarter.
And the second piece is around the next few use cases and some of our larger cloud customers adopting DSP.
That's been a huge internal go-to-market for this for us. And again, early days, but that's also starting to show up little by little in the numbers. So, that's how I got it. And as I said, it's more around momentum and as we accelerated Q4, some of these friends actually bled into Q4 as well.
Speaker Change: is a rufigan. I guess for the follow-up there, it sounds like you're partially answering this already, but trying to get a sense forward that.
Recovery in the man for new use cases or DSP adoption coming from digital natives. Is that explained by...
Speaker Change: Um...
Maybe customers have been rolling over, pushing out projects that are coming online now, or is it more a function of that go-to-market that you guys have in the transformation you can still then maybe that's starting to make more headway into your existing customers.
Yeah, it's a combination of both, you know, customers, you know, what you would see in any of these digital native customers, even going over a long period of time, is kind of a soft tooth up into the right, right? It's not a pure grasp, you know, they tend to make investments, and then they tune, and they make investments, and then they tune.
We did see a little bit more tuning, you know, in recent quarter but, um...
and the other two of us, you know, it's not like that pattern has integrated, just we just thought in more customers all at the same time. Even in that time period, we did see, you know, an intention in those customers of making further investments in new projects. So I would say on the whole, that's the key thing with what we've seen.
Speaker Change: On the DSP side, there definitely is a...
Speaker Change: Compe as well is just intentional focus. We are putting a lot of effort into driving these new products. There's very specific sales plays. We're tracking pipeline and a very distinct way. There's targets and goals around that. It's very much a new muscle to build. But the consumption comp makes it possible to do this because in the past...
We would have goals that were purely on your committed spend.
and really of course there's no distinction of what the spend is on. Now we can have multipliers on specific components of revenue that's playing for connector, whatever it is.
and drive this in a disproportionate way. I think that does help a bit. In terms of making sure that the smaller products that are kind of newer in the journey still get some focus out of the team.
Thank you. Thank you. Thank you. Thank you.
Speaker Change: Thanks, Jay. I'll start with you. You guys called out strength and financial services. We know this is obviously a big vertical for you, but I don't know if you pilot it.
and recent quarters, and anything to call out what would drove this or you starting to see larger deal activity or as your son's broader industry, trying to developing that could be more beneficial in the medium term.
Yeah, I wouldn't say it's a sudden shift or even a one-quarter thing. I mean, I think there's been a broad-based build in financial service going back some years. And I think we just thought it was worth highlighting the point that we've got to. Where this is now a very substantial data platform and the largest financial services.
Speaker Change: [inaudible]
and institutions in the world.
and there's really exciting stuff happening. This is not just that it's big in terms of volume and this is powering some of the most critical systems that they have.
In many of these organizations, they're actually starting to think about how streaming, not just the enables them to share data internally, but how it enables them to connect into many of the other institutions that they share data with on a regular basis.
and this kind of that larger economy within that industry and we think that's a really positive thing. So yeah, it's going very well. We call that the kind of ARR and you know...
Pediatrician, you know, in the largest customers.
We expect that to continue, you know, no sign of slowdown. There's not a particular catalyst to this quarter. You know, I would say it's more just continued strength. And it makes sense when you think about the nature of those businesses that there's just a huge amount, you know, the largest spenders on IT and, you know, a huge amount of kind of real time of that driven machinery behind the scenes.
and as well as a few pushes on the regulatory side towards real-time payments, real-time reporting. There's definitely some nudges as well as pressure on having a modern customer experience, all of which kind of nudges it forward.
I understand. Rohan, maybe you want for you the strength and new customers obviously very impressive.
I think I assume that most of these are open source, Kafka, conversions. But just wondering how you're thinking about the follow-on expansion is just something that could come in a quarter or two because of the consumption model or we think of a land that may be in expand like nine to 12 months from now.
Yeah, you know, the way I think about the new customer is of course the total customers I think that's top of honor and then success will be our progressing these customers to 100 K plus a R, a million dollar plus a R, is something that we internally focus quite a bit as well.
So, on the total customer number that you mentioned, it's a combination of two things, of course, like as part of our consumption transformation, there's been a big focus.
Landing New Customers, but not just New Customers, Landing very high quality logos. And I called out some examples there.
So that's that couple with our telegraph, the PLG motion which is driving some of this customer growth at up. But you know back can obviously vary quarter of the quarters, the best way to look at that is over a 12-month period.
and when you look at the first nine months you're right, I mean we are very happy with the momentum that we've seen.
When you look at 100K plus a year or a cost of money and billion dollars plus a year or a cost of money.
Both those cohorts did see good consistent growth and you know as a reminder 100 K plus co-airer customers account for greater than 85% of our revenue. So overall the focus is across all three but we are pleased with the progress that we are making.
Great, thank you. Alright, thanks Derek. This concludes our earnings call. We know it's a busy night for earnings. We appreciate so many of you joining our call today. Have a nice evening. Thanks everyone. Thank you.
Speaker Change: The End