Q3 2025 Couchbase Inc Earnings Call
Greetings and welcome to the CouchBase third quarter 2025 earnings conference call. At this time all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad. It is now my pleasure to introduce your host Edward Parker. Thank you. You may begin.
Edward Parker: Good afternoon and welcome to Couch Base's third quarter 2025 earnings call.
Speaker Change: We'll be discussing the results announced in our press release issued after the market closed today. With me are Couch Basis Chair, President and CEO Matt Cain, and CFO Greg Henry.
Speaker Change: Today's call will contain forward-looking statements, which include statements concerning financial and business trends and strategies, market size, product capabilities and development, our expected future business and financial performance and financial condition, and our guidance for future periods.
Speaker Change: These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date And we do not undertake any duty to update these statements
Speaker Change: for looking statements by their nature address matters that are subject to risks and uncertainties that could cause results to differ materially from expectations. For discussion of our material risks and other important factors that could affect our actual results, please refer to the risks discussed in today's press release and our most recent annual report on Form 10-K or quarterly report on Form 10-Q followed by the SEC.
Speaker Change: During the call, we will also discuss certain non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these metrics and other metrics, is included in our earnings press releases, which are available on our investor relations website.
With that, let me turn the call over to Matt.
Thanks, Edward, and good afternoon, everyone.
Matt Cain: I'm pleased with our performance in the third quarter, highlighted by strong new customer growth, continued growth in Capella consumption and ARR mix, and continued progress on our full year objectives, which allowed us to deliver top and bottom line results that exceeded our outlook.
Matt Cain: Annual recurring revenue, or ARR, was $220.3 million, up 17% year-over-year, and 16% in constant currency.
Revenue in Q3 was $51.6 million, up 13% year-over-year.
Non-GAAP operating loss in the third quarter was $3.5 million.
Matt Cain: We added 34 new logos, up from 24 in the third quarter of fiscal 2024.
Matt Cain: Capella now represents 15.1% of our total ARR and one-third of our customers are now using Capella.
Matt Cain: In Q3, we saw broad strength in both our core enterprise and Capella businesses with solid performance across renewals, expansions, and new customer lands.
Matt Cain: We saw exciting customer wins across a variety of industries, including government, gaming, fintech, e-commerce, insurance, technology, communications, and travel and hospitality.
Matt Cain: reinforcing my confidence in the increasing relevance of our platform and our ability to meet the application needs across a wide range of use cases and industries.
Matt Cain: Our momentum with Capella continued in Q3, driven by both strong new logos and migrations.
Matt Cain: Notably, we had a major milestone this quarter with a multi-million dollar Capella migration, the largest in our history.
Matt Cain: We're seeing solid customer uptake and increasing consumption of Capella, which bodes well for the long-term growth and durability of our business.
Matt Cain: As I discussed last quarter, we've been making significant progress with a large set of key accounts where we are emerging as a strategic and long-term platform provider to enable a new generation of critical applications.
Matt Cain: This work continued in the quarter, and these large opportunities continue to represent a significant portion of our pipeline.
Matt Cain: The strength of our Q3 performance further underscores our confidence in our ability to close significant wins and expansions in Q4.
Matt Cain: We also demonstrated our commitment to drive leverage across the business as evidenced by our excellent bottom line performance this quarter and throughout the year.
Matt Cain: In Q3, we improved our Rule of Forty score by 9 points year-over-year.
Matt Cain: As you all know, improving our operational rigor and efficiency has been a key priority, and I am proud of the progress we've made in driving efficiency across go-to-market, R&D, and all aspects of our operations.
Matt Cain: Turning to customer wins, we saw notable wins in the quarter across a variety of industries.
Matt Cain: These include a leading global insurance company, which transitioned from community edition to couch-based server to power internal applications for its property and casualty insurance and reinsurance businesses due to our leading price performance.
Matt Cain: We also secured a global airline which is leveraging our mobile capabilities and high-performance platform to power its in-flight entertainment system and enable custom content for passengers.
Matt Cain: Additionally, we want an emerging AI-powered cybersecurity vendor which selected Capella for its speed, ease of development, and strong search capabilities to support its real-time threat detection and remediation offerings.
Matt Cain: Further, a multinational technology company is leveraging Couchbase to support content management for a public sector agency's railway traffic planning platform because of our superior scalability and performance.
Matt Cain: Lastly, a leading online retailer chose Capella to power its mobile app, further demonstrating Capella's versatility and appeal across industries.
Matt Cain: Our existing customers continue to demonstrate a growing commitment to the CouchBase platform.
Matt Cain: A major couch-based server expansion in Q3 was a Fortune 500 global media and technology company.
Matt Cain: This customer relies on Couchbase for several use cases, including its Customer 360 application, which helps deliver enhanced customer support across multiple lines of business.
Matt Cain: By expanding its use of Couchbase, this customer was able to further consolidate its tech stack, benefiting from our platform's flexibility and performance across multiple teams and use cases.
Capella migrations and expansions were also strong in Q3.
Matt Cain: An EMEA-based airline decided to migrate to Capella due to our fully managed capabilities and enhanced features like Capella IQ to improve developer productivity.
Matt Cain: A leading online gaming company is expanding its use of Capella to power its customer personalization and content management for its cross-product promotions, where speed, scalability, and resiliency during peak times is a primary requirement.
Matt Cain: Additionally, an emerging communication software vendor is expanding its use of Capella given its low TCO in support of a variety of cloud-first initiatives.
Matt Cain: As I mentioned earlier, we saw our largest Capella migration to date with the Fortune 500 Global Hospitality Company, where we power its mission-critical central reservation system and member loyalty program.
Matt Cain: It originally selected Couchbase to replace its legacy infrastructure in order to create personalized customer experiences, improve online reliability, and release new apps faster.
Matt Cain: This multi-million dollar AR enterprise customer decided to migrate to Capella to further modernize its infrastructure and align with its cloud-first digital transformation initiative, and as a result, they are committed to tripling their spend with us.
Matt Cain: As you all know, Couchbase was architected to be the foundation for critical applications, delivering one of the world's most scalable, performant, and flexible modern data platforms.
Matt Cain: 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.
Matt Cain: A key component of our flexible deployment model is our native edge capability, which empowers mobile developers to move data and compute closer to where it's being used.
Matt Cain: This not only improves the speed and resilience of mobile applications, but also eliminates dependencies on distant cloud data centers.
Matt Cain: In Q3, we saw significant traction with our mobile use case, as more customers recognized Couchbase as the only mobile database offering built from the ground up for these types of use cases.
Matt Cain: Our mobile solution makes Couchbase highly embeddable and programmable at the edge, catering to a wide range of applications across industries such as retail, healthcare, industrial, and IOTs.
Matt Cain: We believe that our platform approach is the reason why our customers continue to demonstrate a growing commitment to the couch-based platform.
Matt Cain: As demand for hyper-personalized, real-time AI applications accelerates, the core tenets of our value proposition are only becoming more relevant.
Matt Cain: As I've mentioned throughout the year, we are seeing an increasing number of strategic projects across our customer base, where organizations are evaluating, architecting, and building the next phase of their data infrastructure to meet the needs of their AI and next generation applications.
Matt Cain: It's becoming increasingly clear that many alternative approaches and solutions are failing to meet the long-term demands of enterprises looking to scale their infrastructure for their rapidly evolving application roadmaps.
Matt Cain: As enterprises look to build the next generation of adaptive applications, the need to combine ever-growing volumes of data, whether structured, unstructured, internet-based, or proprietary enterprise data, with extremely low latency and high performance, is becoming more urgent. This is a trend that will only intensify in the coming years.
Matt Cain: Now, let me introduce you to our latest offering, Capella AI Services, which we just announced yesterday.
Matt Cain: Enterprises are facing challenges with both developing and deploying AI and with streamlining the creation of secure, agentic AI applications at scale.
Matt Cain: Our new AI services are designed to empower enterprises to address these challenges head-on and include model hosting, automated vectorization, unstructured data preprocessing, and AI agent catalog services.
Matt Cain: These comprehensive services allow organizations to avoid latency issues and high operation costs, both of which are frequently encountered by application developers.
Matt Cain: By giving developers control over data throughout the development lifecycle and mitigating security and privacy issues with running LLMs outside the organization, we enable teams to bring agent-based applications into production in a safe and reliable manner.
Matt Cain: We are continuously extending our platform with new features and services, all purposely designed to empower developers in building next-generation applications.
Speaker Change: As AI reshapes the landscape of software development, Couchbase equips developers with the developer data platform that integrates transactional.
Speaker Change: analytic, mobile, and AI functionality into a unified fully managed service.
Speaker Change: Our mission is to simplify how developers and architects leverage these capabilities to create premium application experiences that push the boundaries of innovation without compromising on functionality, performance, operational costs, or connectivity.
Speaker Change: Before turning the call over to Greg, I want to take a moment to highlight the incredible momentum we've been seeing on the product front.
Speaker Change: Over the past quarter, I've had the privilege of spending significant time with our engineering leadership, and I can confidently say that the energy and excitement within the team are palpable. They're deeply inspired by what we're building and the significant impact it will have on our business.
Speaker Change: Our product teams are moving faster than ever, and the passion and commitment across the organization are truly remarkable.
Speaker Change: Looking ahead, I'm incredibly excited about the key initiatives we have in the pipeline and I look forward to sharing more with you in the quarters to come.
Speaker Change: In conclusion, I'm pleased with the operational progress that we made across the company in the third quarter.
Speaker Change: We delivered strong top and bottom line results, made progress on our strategic priorities, delivered strong new customer growth, meaningfully increased our Capella mix, and continue to drive efficiency across our model.
Speaker Change: At the same time, we continue to make rapid progress with a number of high-priority accounts where we are emerging as a strategic and long-term platform provider.
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: This opportunity set adds to my confidence in delivering a strong Q4 and our ability to drive substantial wins and expansion for years to come.
Speaker Change: And finally, we continue to drive innovation into our leading platform, positioning us even further as a long-term strategic partner for enterprises and their most critical applications in our AI world.
Speaker Change: As always, we will attack hard problems driven by customer outcomes.
Greg Henry: With that, I'll now hand the call over to Greg to walk you through our results in more detail. Greg?
Greg Henry: Thanks Matt, and thanks everyone for joining us. I'm pleased with the rapid progress we made in the third quarter, including our top and bottom line performance, new logo generation, strong retention, and ongoing cappella momentum.
Greg Henry: Despite a challenging environment, we continue to see strong demand for our platform and remain confident in our trajectory and ability to achieve our fiscal 2025 goals and the objectives we laid out at our Analyst Day.
Greg Henry: I'll now walk you through our third quarter financial results in more detail before providing our guidance for the fourth quarter and fiscal year.
Greg Henry: Total ARR was $220.3 million, representing growth of 17% year-over-year and 3% sequentially above the midpoint of our guidance range.
Greg Henry: We ended the third quarter with $33.2 million of Capella ARR, representing 15.1% of our total ARR, up from 13.5% last quarter. Capella ARR grew 15% sequentially and is up nearly five times over the past two years.
Greg Henry: Turning to revenue, third quarter total revenue was 51.6 million dollars exceeding the high end of our outlook up 13% year-over-year and flat sequentially.
Greg Henry: Software revenue was $49.3 million, up 12% year-over-year, and flat sequentially.
Greg Henry: professional services revenue was 2.3 million dollars up 28% year-over-year and 1% sequentially.
Greg Henry: Q3 ARR per customer was $244,000, down from $246,000 last quarter, and down from $264,000 in Q3 2024.
Greg Henry: As a reminder, ARR per customer growth could moderate or decline as our Capella mix continues to grow in contribution.
Greg Henry: Our dollar-based net retention rate, or NRR, continues to exceed 115 percent.
Greg Henry: We exited the quarter with 903 customers, an increase of 34 net new customers from last quarter. Our Capella customer count grew by 27 in the quarter.
Greg 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.
Greg Henry: We continue to focus on growing efficiently, and in Q3 we again outperformed our operating loss outlook.
Our third quarter gross margin was 88.2 percent.
Greg Henry: This compares to 89.5% in Q3 of last year and 88.3% last quarter, benefiting from sustained enterprise gross profit margin strength offset by growing Capella mix, which inherently carries a lower gross margin.
Greg Henry: Turning to expenses, third quarter sales and marketing expenses were 28.7 million dollars for 56% of revenue. Research and development expenses were 12.9 million dollars, 25% of revenue.
Greg Henry: General and administrative expenses were $7.4 million or 14% of revenue.
Greg Henry: Exercising expense discipline remains a priority and I'm pleased with our progress on this front.
Greg Henry: Operating loss for the third quarter was $3.5 million, or a negative 7% operating margin, 3.1 percentage points above the midpoint of our implied operating margin guidance range.
Greg Henry: This compares to a loss of $5 million or a negative 11% operating margin in Q3 of last year.
Greg Henry: Net loss attributable to common stockholders of $2.4 million, or negative 5 cents per share.
Greg Henry: Turning to the balance sheet, we ended the third quarter with $141.9 million in cash, cash equivalents, and short-term investments. We remain well capitalized for executing against our long-term strategy.
Greg Henry: Our remaining performance obligations, or RPO, was $211.3 million at the end of Q3, up 29% year over year.
Greg Henry: We expect to recognize approximately 61% of $128.7 million of total RPO as revenue over the next 12 months, representing growth of 15% year-over-year.
Greg 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.
Greg Henry: Operating cash flow for the third quarter was negative 16.9 million dollars.
Greg Henry: Free cash flow was negative $17.5 million, or negative 33.9% free cash flow margin. We remain committed to being free cash flow positive for fiscal 2026.
Greg Henry: Now, I will provide our guidance for Q4 and the full year of fiscal 2025.
Speaker Change: As Matt mentioned, we are encouraged by the strong momentum we built across our business, particularly with a growing number of large strategic opportunities where Couchbase is being evaluated as a key component of their long-term initiatives.
Speaker Change: Additionally, we remain confident in Capella's role as a major growth driver supported by ongoing investments in expanding our product capabilities, strengthening our partner ecosystem, and refining our go-to-market strategy.
Speaker Change: As a reminder, several dynamics that we discussed last quarter are contributing to the relative strength and visibility of our ARR Outlook for Q4.
Speaker Change: These include the composition and timing of our renewal pool, which remains heavily weighted towards Q4, the aforementioned pipeline of large opportunities, and a significantly higher-than-usual amount of pre-contracted ARR.
Speaker Change: These factors continue to play out as expected and add to our confidence in achieving our four-year objectives
Speaker Change: That said, we remain mindful of the macroeconomic headwinds and continue to closely monitor their potential impact on our business.
Speaker Change: Given this, our outlook for Q4 incorporates a prudent level of conservatism to account for these uncertainties, as well as a lack of visibility into how the macroeconomic conditions may affect upsell and migration timelines, as well as consumption trends for emerging as-a-service offerings.
Speaker Change: With these factors in mind, for the fourth quarter of fiscal 2025, we expect total revenue in the range of $52.7 million to $53.5 million, or year-over-year growth of 6% at the midpoint.
Speaker Change: We anticipate ARR in the range of $236.5 million to $239.5 million, representing 17% growth year-over-year at the midpoint.
Speaker Change: We expect a non-gap operating loss in the range of negative 5.7 million to negative 4.7 million dollars.
Speaker Change: Now, turning to our revised full-year guidance, we are raising the midpoint of our revenue outlook and now expect a full-year total revenue in the range of $207.2 million to $208 million, or a year-over-year growth of 15 percent at the midpoint.
Speaker Change: And finally, we are decreasing our operating loss guidance and expecting non-GAAP operating loss in the range of negative $20 million to negative $19 million.
Matt Cain: With that, Matt and I are happy to take your questions. Operator?
Thank you.
Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the start keys.
One moment, please, as we poll for questions.
Speaker Change: Our first question comes from the line of Raymond Lenchow with Barclays.
Please proceed with your question.
Speaker Change: Perfect. Thank you. Congrats on the solid Q3, guys. I wanted to focus on Q4 a little bit.
Speaker Change: and then well then eventually revenue, you know, like in terms of is that kind of then, you know, you sign the quantum in Q4, then we should get, you know, we should see it more in the numbers in the next year, or how does that kind of translate your excitement into the numbers? Because I think that's the disconnect at the moment a little bit. Thank you.
Speaker Change: Remo, appreciate the question and I'll start off with some commentary on the opportunity set and why we remain excited about it and confident in delivering a great fiscal year and then I'll defer to Greg on some of the
Dynamics on the financials.
Greg Henry: As we talked about last quarter, this year, renewal pool, the way things play out, is more of a second half dynamic than has typically been the case.
Greg Henry: and certainly we needed to execute well in Q3 to remain confident on the delivery of the back half and we did that. Solid performance across renewals, upsells, migrations, and new logos.
Greg Henry: And we did that all while progressing this pipeline of strategic opportunities in the back half.
Greg Henry: These are very large opportunities with some of the largest enterprises around the world that are making strategic, long-term decisions about
a database platform of choice, and you can appreciate that.
Greg Henry: Those are not simple decisions that they're making or processes that we are navigating. That said, they're very exciting for us because it speaks to what we've built as a platform and the trust that we're getting from these customers and their view of us as a strategic partner on a go-forward basis.
Greg Henry: And so, based on the progression of that, you know, we are reiterating our confidence in Q4.
Greg Henry: and expect to be, you know, sharing the results of those on a go-forward basis. As it pertains to ARR and revenue dynamics, there are some differences with respect to, you know, Enterprise and Capella, but Greg, why don't you take it from there? Yeah, hey, Ramo. So, look, one of the things we've talked about is Q4 was going to be...
As usual our largest court of the year
Greg Henry: We talked about last earnings that we had several million of pre-contracted ARR, which gave us confidence.
We built that balance up slightly.
given what we delivered in Q3.
which gives us a little bit more confidence from there.
Greg Henry: and then the majority of what will get done will translate into revenue in Q4. But as always, given that we're at January 31, there's certainly a period in January where a lot of our customers are through their or into their new fiscal year. Budgets get released and they can start having discussions. So there could be deals from Q1 that come forward where we get some ARR but not the revenue. But we factored all of that into our guidance and feel good about how things are laid out here.
Speaker Change: Thank you. And then, Matt, on the AI comments that you made on the call, what are you hearing in terms of customer conversations, how Capella...
Speaker Change: kind of fits in or like, you know, Couchbase as a whole fits into that kind of
Speaker Change: AI blueprint that people are thinking about going forward. Thank you.
Speaker Change: Rima, we probably aren't having a single conversation with a customer or a developer or technical team that isn't thinking about the implications of AI for their business and more importantly for us what that means for their database and data platform of choice as they build AI based applications. I think
Speaker Change: One thing that continues to come through through these strategic discussions and even when we're landing new logos is the view of these customers that Couchbase is a strategic platform platform for them in an AI world.
Speaker Change: We worked very hard to add a tremendous amount of services into the data platform, all at the same time, simplifying the experience for developers. And yesterday's announcement on AI services takes that even further really.
Speaker Change: allowing customers to combine structured and unstructured information, vectorizing everything inside of our data platform, bringing the appropriate models.
Speaker Change: into Capella to simplify how developers can take advantage of AI but do it in a secure and entrusted way through the Capella platform. So we think the future is very promising along those lines and these capabilities further reinforce
Speaker Change: Some of the platform differentiators that we've architected into our platform that we've been articulating for for some time so we are certainly excited about the release and excited about the Discussions that we're having around the world with our customer base
Perfect. Thank you. Congrats.
Thanks, Ravel.
Speaker Change: Thank you. Our next question comes from the line of Mike Sikos with Needham & Company. Please proceed with your question.
Speaker Change: Great, thanks for taking the questions here guys. To circle up on Raymond's first question there, but maybe for Matt to start, good to hear about the progress made with that large set of key accounts. Just wanted to get a better understanding
Speaker Change: What is the visibility that you guys have as far as timeline for for closing those deals and I'm just trying to get a better sense
Speaker Change: Should we expect that in in Q4, or is there It's not as cut and dry as that some deals could push or that some of these were expected to Always be maybe more of a fiscal 26 event. Just wanted to see if we get some greater granularity with those deals
Speaker Change: Yeah, Mike, it's a good question. Look, when it pertains to large opportunities, you know, timing is a variable that we need to study very carefully.
Speaker Change: And it's about finding a great outcome for customers, and when they're prepared to move forward, and at the same time,
Speaker Change: finding a good outcome for us and getting started, you know, as soon as possible.
Speaker Change: Our confidence from Q4 stems in the strength of the pipeline, I would say, so having a very broad set, the broadest set of strategic accounts that are this far into their decision-making process as we've probably ever had in any given quarter.
Speaker Change: and studying steps in the sales process, whether it be a technical win or understanding a particular compelling event, like an application deployment schedule at a customer. And as we.
examine all those variables across the pipeline.
Speaker Change: What we think about a lot is we have multiple paths to execute on a great Q4, knowing that we don't have to bat a thousand on all those opportunities, and some of them could.
Speaker Change: You know, move into next fiscal year which we would you know expect a certain percentage of those to happen. [inaudible]
Speaker Change: So, I think it's about the broad set, the level of intimacy we have with these accounts and their decision-making process, understanding where they are with their...
Speaker Change: strategic projects that are dependent on Couchbase and you put all that together and we're a lot smarter about those based on the work that we got done over the last 90 days which which gives us the visibility and confidence to you know articulate the story that we have.
Speaker Change: Very good and maybe a follow-up for Greg as well. I think in the prepared comments you had cited this
Speaker Change: greater amount of pre-contracted ARR that we have here today. Would it be possible to quantify or maybe provide some qualitative commentary as to
How significant that is versus historical precedent?
Speaker Change: Yeah, sure. Hey, Mike. Look, there's always the opportunity for this and so some quarters we have some pre-contracted ARR and some we don't.
Speaker Change: This quarter happens to be a quarter where we have the most we've probably had in company history. And it's probably, we've stated before, it's several million dollars.
and it's probably 2x-ish.
Speaker Change: you would normally see in a quarter that was on the higher side.
Speaker Change: This is driven by some of the deals we did last Q4 in particular.
plus
the large
Capella migration we did in
Q3 is also providing some additional...
Speaker Change: contracted ARR for Q4 and even for Fiscal 26 as they migrate through this period.
Speaker Change: looking at what we have left to do in the quarter is within a very manageable outcome.
Very helpful. Thank you very much, guys.
Thanks, Mike.
Speaker Change: Thank you. Our next question comes from the line of Brent Braceland with Piper Sandler. Please proceed with your question.
Speaker Change: Thank you, good afternoon. Matt, maybe we'll start with you here. Capella Momentum building here, I think it's 70% of net new ARR coming from Capella year to date, but you have about a third of the customers using Capella, but only 15% of ARR mix. Can you just talk through how customers are kind of using Capella? At some point, do you see that Capella activity really start to accelerate and it'll be a bigger part of ARR? Just walk us through kind of customers, a third of them now using it. What are they seeing? When do you think there could be an inflection point where adoption really starts to kind of even accelerate?
Yeah, good question. Look, I think...
Speaker Change: What I would tell you is we're feeling the inflection point, probably influenced as much by numbers that we've put up, by what we see on a go-forward basis.
Speaker Change: I'm particularly pleased with the number of customers that are using Capella.
and we step back and think about when we...
Speaker Change: engage with a customer. It's not a single application. In many cases, it's tens or even hundreds of different applications. And so if we have a customer that has historically been on enterprise, what we really want them is to get started with the CAPEL offering because we think it's in their best interest, quite frankly, as the
Speaker Change: more optimized deployment model for developer ease in our future direction. If they start out with a single application, that moves into the customer count. It's not going to quite drive the ARR percentage as quickly. Now, what we know is the discussions that we're having with our customers
Speaker Change: on ones that are going to migrate eventually. And so between that 30% and 15% of ARR is a whole bunch of built up.
Speaker Change: opportunity where customers are evaluating the time frame for them to move even more applications into Capella.
Speaker Change: and determining, you know, when it makes sense for them to drive that migration. So we've long said that the percentage of ARR is going to be really driven by the point at which
Speaker Change: Some of our biggest customers migrate. We had the biggest one we've ever had happen in Q3, and we have several more opportunities stacked up in the pipeline, but I think combining that with the
Speaker Change: level of just what I would call healthy discussion and proof-of-concept wins and customer feedback on the utility they're seeing with the with the value proposition. We expect this to be a big uplift for the business for a long time on a go-forward basis.
Speaker Change: helpful color there. And then Greg, you got four years of pretty consistent 20% plus ARR growth. You flagged a few of the reasons why growth kind of moderated the last.
Speaker Change: a couple quarters here. You're guiding to, I think, the second consecutive quarter of this 16, 17% kind of ARR growth. Do you think the demand environment's kind of stabilizing for you now, and is that the right?
kind of, you know,
Speaker Change: Here are our growth profiles we should be thinking about going into next year. Thanks.
Speaker Change: Look, we feel very comfortable in our guide, but we'll go back to our investor day a year ago. We have plans and aspirations to be a 20-plus percent grower.
Speaker Change: And so we got to get through Q4 here and see where we ultimately land for the year, but we aren't giving up on that as a as a objective for the company. So I just say, like.
Speaker Change: Guidance is our guidance and we'll get to fiscal 26, you know, three months from now, but we believe with Capella we can be a 20 plus percent grower for the next several years.
Sounds great. Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Matt Edberg with RBC. Please proceed with your question.
Great, thanks for taking my question guys.
Speaker Change: You know, speaking on the same topic, it's great to hear the confidence on the 4Q renewal and the opportunity there. And, you know, Greg, I appreciate, you know, being too early to talk about 25, but is there some way to think about the relative opportunity set for next year, you know, from that renewal or new business? You know, could it be, you know, multiple times as big as this year? And I guess from a linearity perspective, this year was second half weighted. Is it right to assume next year will also be second half weighted in terms of those bigger renewal opportunities?
Speaker Change: Yeah, good question, Matt. We obviously aren't guiding to fiscal 26 as of yet. I will give you some color on how, you know, things are shaping. This year, the renewal pool was a little bit lower. It was back halfway to next year. We believe the renewal pool will be
Speaker Change: higher in totality and much more evenly balanced before between first half and second half next year. Now again we got to get through Q4 and see if there's some things that get done from fiscal 26 in Q4, but that's how things sit now. So I think it's going to be much more balanced like you saw probably in fiscal
24 than what you have seen in fiscal 25.
Speaker Change: That's it for me guys, congrats on the results and best of luck in 4Q.
Thank you, Matt.
Speaker Change: Thank you. Our next question comes from the line of Isaiah Kidron with Oppenheimer. Please proceed with your question.
Speaker Change: Hey, this is Harshal for ETIA. Thanks for taking the question.
Speaker Change: Greg, I'm trying to square away the 4Q revenue growth guide with the RPO and ARR growth in the quarter. Could you maybe just shed some color on, you know, kind of what are the underlying mechanics that is causing the divergence there and what it will take in the timeline for revenue growth to kind of come back in line with ARR and RPO growth?
Speaker Change: and then with Capella becoming a larger part of the mix.
Speaker Change: Is it possible that the divergence in growth will remain given the time it takes for Capella customers to kind of ramp up their consumption? Thanks.
Speaker Change: Yep, good question. And the last part of your question was a part of the answer to your question, which is
The more we do migrations.
Speaker Change: The further pushes revenue out because we go to a complete consumption rev rec.
Speaker Change: versus getting the upfront license. So as we talked about, we did our single largest Capella migration in Q3, which will just push out some of that revenue. And then some of it is, again, it's just timing of when deals are getting done, if they're enterprise versus Capella.
Speaker Change: So that's how we've laid it out. What I can tell you is the revenue completely jives with how we've laid out our ARR guidance.
Speaker Change: for the fourth quarter, based on what we know in terms of what's going to be Capella versus Enterprise. And the revenue will lag, but eventually will catch up. And again, I've always said, as long as ARR is growing faster than revenue, I think we're all going to be happy because we know that's going to come behind it.
Got it. Thank you.
Thank you.
Thanks for watching!
Speaker Change: Thank you. Our next question comes from the line of Rob Oliver with Bayard. Please proceed with your question.
Speaker Change: Great, thank you. Good afternoon. Matt, one for you to start. Just on the migrations, nice momentum there and I know you guys
Speaker Change: As you've been calling out, I've been spending a lot of time with these...
strategic accounts.
Speaker Change: I was wondering if you could, you know, just help us understand how you think about your preparedness as you head into next year with a bunch of...
Speaker Change: you know, uh, contracts up for renewal, um, learnings you've had or your preparedness to migrate those customers at that time, you know, obviously you guys just not your largest migration, you know, ever. Um, so clearly some learnings from that. And also I know you call that a community, um, migration as well, which is enticing, you know, and is there a driver out there that's sort of getting people to reconsider, you know, free versus stepping up to actually commit the couch base. And then I had a quick followup for Greg.
Speaker Change: Yeah, thanks, Rob. Look, as it pertains to preparation, I would say, unequivocally, we are prepared.
the service that we're offering, the level of...
Speaker Change: capabilities we have to watch customer deployments and help them navigate changes in their environment has never been more sophisticated, and a testament to our engineering and support teams that work every day to, you know, improve that when and where we can. You asked for learnings. I think every customer environment is different.
Speaker Change: What version are they running on? What's the nature of their application? Are they in a business where Black Friday may impact schedules? And so I think it's really about understanding the specifics of the customer environment, what they're solving for, where they may or may not be deriving the most benefits from total cost of ownership.
Speaker Change: who in the account are we talking to and who's signing off on the opportunity that has visibility across all these variables. So I'd say.
Most of the learning, quite frankly, has been on
Speaker Change: The important variables that dictate when a customer is ready to go or when we may have more work to do and understand those leading indicators as as we're navigating the pipeline but when when customers are ready to go you know the services
Speaker Change: market leading, and we are incredibly confident in the capabilities that we have, you know, inside of Capella. And that is as true for new customers as it is for customers that are migrating.
Speaker Change: Look, in any quarter, we have customers that have been deployed in Community Edition that see the value in moving to a paid offering. Interestingly enough, in a lot of cases,
Speaker Change: We can prove a better TCO when people are paying for the offering because of
Speaker Change: Our ability to help them with the deployment and the underlying, you know, infrastructure. Capella can be an on the margin, even incremental reason for people to move from, you know, C. E. and into that offering. So that remains.
Speaker Change: you know, a set of pipeline for us to go after, and I think it's aligned with our overall
Speaker Change: get people using Couchbase. They see the value in the platform. They see the value in the additional services that we're bringing to market.
Speaker Change: and, you know, the land and expansion part of our business that's been so true for so long, you know, continues to accelerate.
Speaker Change: Great, that's helpful, thanks. And then Greg, just one for you. I know last quarter you guys had called out some turn and down sell pressure. It sounds, you know, that was not called out this quarter, so it sounds like that was not an issue for you guys this quarter, which is great, but just particularly headed into...
Speaker Change: You know an important Q4, which has been the subject I think of a lot of the questions on this call You know, you know what what sort of initiatives or what you guys did internally to help to mitigate You know that risk as you come into some of these Contracts. Thank you
Speaker Change: Yeah, thanks, Rob. Yeah, I agree. We did. We experienced sort of what we would consider in range normal loss and down sell in Q3.
Speaker Change: which is continuing to point to us, which we suspected was Q2, is going to be anomalous.
Look, we've done reviews of the deals.
Speaker Change: We do this weekly and we don't believe that there's going to be an elevated amount of loss and downsell in Q4 as far as we can see now. So again, I think for us it's pointing to that Q2 was anomalous and
Speaker Change: you know, hoping that we can, you know, not have to cover this topic again, just because this is, this is, Q2 is the first quarter. We had seen that in several years. So, again, I don't think this is going to be a trailing issue for us.
Speaker Change: Got it. Okay. That's great to hear. Thank you guys very much. I appreciate it.
Thanks, Rob.
Thank you.
Speaker Change: Our next question comes from the line of Rudy Kessinger with DA Davidson. Please proceed with your question
Speaker Change: Hey, this is Andres for Rudy. Thanks for taking my question. I just have one at a higher level. How should we think about the conservatism embedded in your ARR guidance? I mean, you guys have been sounding positive about your performance in Q3.
Speaker Change: But ARR will use a couple hundred thousand out of the midpoint of your Q3 guidance and you know that follows a couple misses from you know Q1 and Q2 and if we go back to 23, 22 or fiscal 24, fiscal 23, I think we got more used to seeing more upside so if anything those
Speaker Change: No, is there anything that we should call? You know, any one times that we should call that happened in Q3 that maybe accounted for the conservatism going forward?
Speaker Change: Yeah, good question. No, I don't think we've, or let's say we've approached our, our guidance the same way we do every quarter. We haven't changed our approach. We've always said that.
That can happen particularly q4 was going to be
Speaker Change: the big number because of A, the pre-contracted revenue, and B, because of the size of the renewable pool. And so I don't think there's anything different. You heard Matt talk about the size and number of strategic deals we have going on. They just are tending to, once to be in Q4.
Speaker Change: Several of them have compelling events, which are renewal points, among other things.
Speaker Change: This was always leading to be an uneven year with a back end and particularly Q4.
you know, loaded quarter.
Speaker Change: Like I said earlier on the question, fiscal 26 will get it back to sort of more normal balance, but we haven't changed our guidance philosophy or approach here based on the Q3 results.
Speaker Change: Yeah, let me add one point that we haven't articulated so far, and I give a lot of credit to the go-to-market teams in the company on this, and that is
Speaker Change: monetizing the growth for that in a way that, you know, our shareholders would be excited about, that we're enjoying that growth as customers are deploying on more applications.
Speaker Change: And as it pertains to deals on the margin around the quarter, there can be a...
Speaker Change: tendency to want to drop discounts pull things in and you know that at the expense of longer-term economics
Speaker Change: And one thing that I'm very proud of is the delivery of Q3 without doing that, which in turn could have hurt the back half. And so I'd say that's another dynamic as it pertains to guidance and actuals in the Q3-Q4 second half build and some of the tone that you're hearing from us.
Speaker Change: Yeah, that makes sense and I have a quick follow up if I may.
Speaker Change: Understanding that you have some pre-contracted net new AR contribution for Q4, the guy still seems to like a little bit.
the new AR number.
Speaker Change: Yeah, again, we've used this sort of the same guidance approach. So we obviously, you know, you see what our guide is.
Speaker Change: We know the pre-contracted ARR is sort of in the bank, if you will, and so we look at what's left to do in the quarter versus the deal activity in terms of renewals.
Speaker Change: opportunity to migrate, new logos, etc. And we come up with a range of outcomes. And this is where we landed. And that's why we feel good about our, our guidance. And again, I'll point back to what Matt said about
Speaker Change: the pool of large strategic deals that are sitting there for us now, and if not now, clearly into Q1. But again, we feel very comfortable with how we've guided for Q4 here.
Okay, that's all, thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Sanjit Singh with Morgan Stanley. Please proceed with your question.
Great, thank you. You have to tune on to Sanjeev.
Speaker Change: Maybe on the exciting announcement that you made in the quarter,
Speaker Change: If you could sort of articulate on the vector search and AI services announcement what capabilities you are really Differentiated from your competitors and then as it relates to the momentum of those What specific use cases or verticals are you seeing that are showing?
Speaker Change: Early adoption signals or you've really found an outsized opportunity and then as a second question for Greg
and Jeff.
Speaker Change: sort of double-clicking once more on the Q4 net new AR, anything you can sort of qualify around the mix between pre-contracted AR and the composition of the renewal pool? And then in response to Raymo's question, it sounded like you were talking about Q1 early renewals being factored into the guide.
Speaker Change: Are those factored into the guide or are those just an area of upside that you sort of called out?
Speaker Change: All right, great. Let me, let me start with the kind of product question.
Speaker Change: So, look, we are absolutely excited about the level of innovation that we're delivering to the market as we articulated.
Speaker Change: and we are building on, you know, releases that we've made throughout the year in areas like Columnar and our developer free tier.
Speaker Change: The announcement yesterday on AI services, I think, is a material one that, in and of itself, has differentiators, but also
points to platform differentiators that are critical to
Speaker Change: emerging as the developer data platform that enterprises are going to want to choose.
Speaker Change: We have a carefully architected platform that goes from cloud to edge that's architecturally integrated for distributed applications with synchronization and data consistency technologies to support those applications. And we are JSON native, all of these embedded into the Capella as a service offering that in and of itself has AI capabilities to enhance developer productivity.
The announcement yesterday expands on all of that.
Speaker Change: being able to bring unstructured data like PDFs and CSVs directly into Capella in a JSON native format and combine that with the rest of your data sets, being able to vectorize the entirety of your data set and then have the scale and performance that other platforms aren't going to reach.
Speaker Change: bringing open source models and embedded models directly into Capella and benefiting from the ease-of-use capabilities that we've also added to the platform.
Speaker Change: The holistic approach of how we're thinking about architecting this data platform is different.
Speaker Change: than other platforms, and it's going to come down to scale and performance and enabling large enterprises to build.
Speaker Change: Some of the most powerful AI applications, you'd be hard pressed to find a database that has a combination of features that that I just articulated. And that's the reason why.
Speaker Change: We have the pipeline of opportunities, we do in the back half and beyond, because people see the value proposition in
Speaker Change: this platform that is so unique and continues to deliver for
Speaker Change: some of the most important applications in the most important companies around the world. And there's more to come with that architecture that we have worked so hard to build and maintain and stay committed to. So the innovation engine is roaring at Couchbase and we are excited about.
you know, the AI world that's in front of us.
Speaker Change: Yeah, just to hit on your second part of your question look for the way we the way we build any forecast or guidance is
Speaker Change: on the enterprise side of the business, which, as you can see, is still 85% of our business. We know our historical renewal rates.
Speaker Change: We know how much we can up-sell at the point of renewal, how much we up-sell outside the point of renewal, new logos, and then we get into Capella and consumption. So we build it up from there to give us a range of outcomes.
Speaker Change: After that, now for Q4, because of what I've talked about is there is several million of pre-contracted AR, we layer that on top, and that balance of pre-contracted AR, as I will remind you, got a bit stronger through the Q3 bookings. And so that's what gives us sort of a range of outcomes and gives us comfort in what we're guiding for Q4 and what we believe we can deliver.
on the Q1 and fiscal 26, it's very natural that
Speaker Change: our sales team as they get towards the end of the year, particularly as they get into accelerators, they will look to see if there's business that they can bring forward in a high quality way, right? So this is new business and it always happens. We do assume some of it in our guidance, but it's pretty minimal. It's always tough to know who's going to do that or not, but we know that some of that happens.
Speaker Change: towards the end of the year, and so there's a small amount baked in, but
Speaker Change: Given the large set of deals that we're working with, there certainly could be more if customers are willing. So this is what gives us, again, comfort on our guidance and what provides us additional cover with the Q1 opportunities as well.
Thank you.
Speaker Change: There are no further questions at this time. I would like to turn the floor back to Chairman and CEO Matt Cain for closing remarks.
Matt Cain: Thanks, Operator, and thank you all for joining. We're confident in our ability to deliver a strong end to fiscal 2025, and we look forward to speaking with you again next quarter.
Speaker Change: And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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