Q1 2026 Couchbase Inc Earnings Call
Greetings and welcome to the Couch basis first quarter 2026 earnings conference call. At this time, all participants are in a listen only mode.
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Edward Parker: Now my pleasure to turn the call over to Edward Parker head of Investor Relations. Please go ahead Sir.
Speaker Change: Good afternoon, and welcome to cost basis first quarter 2026 earnings call, we'll be discussing the results announced in our press release issued after the market closed today with me are cost basis share President and CEO, Matt Kane and interim CFO Bill Carrie today's call will contain forward looking statements, which include statements concerning financial business trends and strategies market size product capabilities are.
<unk> future business and financial performance and financial condition, and our guidance for future periods. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, we do not undertake any duty to update. These statements forward looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to the risks discussed in today's press release and our most recent annual report 10-K and quarterly report on Form 10-Q filed with the SEC.
During the call. We will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures 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.
Matt: Thanks, Edward and good afternoon, everyone I'm pleased to report that we had a great start to fiscal 2026 and a strong Q1, we.
Matt: We delivered first quarter revenue and non-GAAP operating loss results that exceeded the high end of our guidance ranges highlights include substantial acceleration in our net new here, our gross driven by momentum in our large strategic accounts, where we continued to see strong upsell and expansion activity.
Matt: And continued capella adoption driven by migrations and application growth.
Matt: Drifting to robust growth in credit consumption.
Matt: We continue to execute on our strategy to be the database for critical applications in our pipeline of large strategic opportunities continues to grow.
Matt: I'm pleased with the operational performance and focus of all our teams across the company.
Matt: Macroeconomic uncertainty did not impact our ability to deliver.
Matt: Total <unk> was $252 1 million up 21% year over year, 20% in constant currency.
Matt: And 6% sequentially.
Matt: Net anywhere or was $14 2 million up more than 300% year over year.
Revenue in Q1 was $56 5 million up 10% year over year and 3% sequentially.
Matt: We had a $4 2 million non-GAAP operating loss in Q1 <unk>.
Matt: Capella now represents 17, 4% of our total <unk> and 33% of our customer base.
Matt: In Q1, we continued to capitalize on the deepening engagement, we've had with a growing set of strategic accounts, where cap space is emerging as a long term platform provider to power their critical applications.
Matt: We've been deeply focused on solving the intensifying data challenges faced by developers tasked with building. The next generation of applications. We're looking for increased levels of scale and performance delivered in a unified platform consumable and a flexible and seamlessly integrated way.
Matt: In support of our efforts, we made enhancements to our go to market motion with a disciplined focus on identifying these applications across a range of enterprise use cases, including the creation of dedicated strategic account teams complemented by expanding the ways for new and existing.
Matt: <unk> to get started with new applications built on cost base, including the capella free tier, which lowers the barrier to entry and enabled long term expansion on our platform.
Matt: At the same time, we are maintaining our rapid pace of innovation with new features and capabilities to empower developers.
Matt: This momentum resulted in our strong net new here, our performance, which was the highest ever for a first quarter and the third highest quarterly net new <unk> in company history our.
Matt: Our pipeline of strategic opportunities, where we have the potential to be a true platform winter continues to grow which in combination with our strong Q1 results reinforces my confidence in our strategy and our ability to maintain our momentum this fiscal year and beyond.
Matt: Complementing the strong renewal and expansion activity in Q1 momentum continued with capella with are increasing over 80% year over year in.
Matt: In addition to new logo wins and migration activity Capella saw very strong credit consumption growth driven by customers, both moving applications into production as well as launching new ones.
Matt: As our Capella base grows we believe favorable consumption dynamics can continue as both existing and new customers realize our platforms unique performance and scale.
Matt: Increased consumption across our customer base is indicative of the value, we bring and gives us confidence in our ability to deliver sustainable growth.
Matt: Okay.
Matt: To share some customer highlights from the quarter, we saw exciting new wins in a variety of industries, including industrial energy government sports and entertainment and health care.
Matt: Some of our enterprise wins in the quarter include an.
Matt: An integrated energy company, which selected couch space to power its nationwide loyalty program App.
Matt: Our defense customer from a G. Seven nation responsible for special forces operations, which selected <unk> to power its frontline medical application used to securely record and share critical data in real time.
Matt: And the global Medical Technology company, which selected couch space to power. Its cardiopulmonary units mobile app that will be deployed across more than 10000 devices using over 100 hospitals and health care facilities.
Matt: Turning to Capella, a new Capella win in Q1 was a major North American professional sports organization, which selected us to power a key web application, which tracks and displays real time telemetry during live events.
Matt: This customer required rapid data processing high availability and seamless scalability and chose couch base over a competing hyperscale solution because of our performance ease of use and ability to efficiently manage high velocity data streams and a mission critical environment.
Matt: 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: In Q1, we continued to see significant traction with our mobile use cases, including several competitive replacements as more customers recognize couch space as the only mobile database offering built from the ground up for these types of use cases.
Matt: Examples include our healthcare service provider specializing in both home health and hospice care, which selected capella to power its critical mobile application used by field agents.
Matt: A leading developer of productivity applications for scholastic and college sporting events, which selected capella to modernize its flagship app that delivers real time, scoring and staffs to coaches athletes and fans.
Matt: And a leading American industrial and construction supply distributor, which chose capella to modernize its field service application as with many of our customers our performance at scale against real time dynamic data requirements combined with our offline first synchronization capabilities when connectivity.
Matt: <unk> isn't available continues to be a strong differentiator.
Matt: And we continue to make strides with our large strategic opportunities, which represent a significant portion of our pipeline some.
Matt: Some examples in Q1 include the.
Matt: A global luxury brand, which expanded its enterprise investment to power its mobile customer service app used by in store sales associates.
Matt: A global provider of family travel and leisure experiences, which expanded its investment in couch space to enhance the performance of its theme park mobile app, enabling guests to manage their vacation plans using their smartphones or smart watches.
Matt: And a cloud based parking management solutions company, which migrated a capella for its high performance database capabilities scalability and real time data synchronization support.
Matt: We are honored by the commitment of our largest customers are making with coach space and it's gratifying to see the increasing relevance of our platform as we meet the growing application requirements across a wide range of use cases and industries.
Matt: Simultaneously, we're focused on lowering barriers to entry for developers to use and consume couch base, while enhancing our go to market motion to identify and win critical applications, where our scale and performance capabilities are unmatched.
Matt: We will continue to focus on reaching new applications, including leveraging our entry level starter packs and capella free tier both of which are contributing to a growing pool of potential long term strategic opportunities.
Matt: Turning to products in Q1, we launched couch based edge server and offline first lightweight database server and synced solution designed to provide low latency the data access consolidation storage and processing for applications in resource constrained edge.
Matt: Environments.
Matt: From airplanes to retail stores organizations need fast reliable local applications that work offline and on affordable constrained hardware.
Matt: Caspase etch server addresses both challenges, providing a lightweight server built for edge hardware, while delivering performance regardless of internet connectivity.
Matt: We continue to invest in and rapidly innovate our AI capabilities.
Matt: Our high performance vector database powers AI agent based applications by enabling the seamless integration of advanced AI workflows.
Matt: With features like model contacts protocol server, we allow AI agents to autonomous Lee perform actions on couch based data simplifying the development of complex Gen AI applications.
Matt: The open source protocol standard enhances the ability for AI agents to securely and efficiently interact with enterprise data supporting scalability reliability and compliance.
Matt: By providing comprehensive visibility and control, we empower teams to innovate faster and with confidence and their AI driven solutions.
Matt: Also in Q1, we expanded cash basis ecosystem support with new integrations and connectors to make it easier for developers to integrate couch base within their application workflows.
Matt: Looking ahead, our innovation agenda is laser focused on simplifying how developers harness these capabilities, enabling them to push the boundaries of what's possible, while delivering premium application experiences without compromising functionality performance operational costs or connectivity.
Matt: <unk>.
Matt: In conclusion, we had a strong start to the year, we exceeded our outlook across all metrics continued building momentum with our large strategic customers and drove continued capella adoption, while further growing our pipeline for the balance of the year and beyond I.
Matt: I remain fully convicted in our ability to achieve our full year objectives, including driving growth in capella adoption accelerating the pace of leverage in our model and further enhancing our support for <unk> and AI use cases.
Matt: We will continue to attack hard problems driven by customer outcomes.
Speaker Change: With that I'll now hand, the call over to Bill Carrie <unk>, our Chief Accounting Officer, and interim CFO to walk you through our financial results in more detail Bill.
Bill Carrie: Thanks, Matt and thanks, everyone for joining us I am pleased with our strong start to fiscal 2026, we had a great first quarter with all key metrics exceeding our outlook continued momentum at capella and strong execution.
Speaker Change: I'll now walk you through our first quarter financial results in more detail before providing our guidance for the second quarter and fiscal year total.
Speaker Change: <unk> was $252 $1 million, representing 21% growth year over year, and 6% sequentially seven $7 million above the midpoint of our guidance inclusive of a $3 $6 million tailwind from foreign currency fluctuations since providing our Q1 outlook.
Speaker Change: Net new <unk> was $14 $2 million up 306% year over year. This reflects our healthy renewals and expansion strong consumption from customers launching new applications and with applications in production and further growth in Capella contribution.
Speaker Change: Capello a R. R was $44 million, an increase of 14% from last quarter and 84% year over year.
Speaker Change: Capello now represents 17, 4% of our total <unk>.
Speaker Change: Our up from 16, 2% last quarter and up from 11, 5% in Q1 of fiscal 'twenty five.
Speaker Change: Turning to revenue total revenue for the quarter was $56 $5 million, an increase of 10% year over year and 3% sequentially software revenue was $54 $8 million.
Speaker Change: Up 12% year over year, and 4% sequentially professional service revenue was $1 7 million down 27% year over year and 22% sequentially.
Speaker Change: Q1, <unk> per customer was $269000 up from $257000 in Q1, 2025 and up from $251000 in the fourth quarter.
Speaker Change: Our dollar based net retention rate or NR are continue to be greater than 114%. As a reminder, while we continue to expect our NRT returned to historical levels in the second half of the fiscal year given the trailing 12 months nature of this metric we believe NR could again be below 115.
Speaker Change: Percent until we anniversary the anomalous loss and downs that we experienced in the second quarter of fiscal 2025.
Speaker Change: We exited Q1 with 937 customers a decrease of 10 net new customers from last quarter. The decline was driven by churning customers with starter packs, which we introduced last year offset by healthy gross retention.
Speaker Change: As you will recall starter packs are part of our funnel for future conversions to more meaningful.
Speaker Change: And are typically sold for 1000 $5000.
Speaker Change: So churn in this cohort impacted our total net customers. We have had success in growing AUR from this cohort and tumor well over $500000 in the R. R.
Speaker Change: In discussing the remainder of the income statement. Please note that unless otherwise stated all references to expenses results of operations and share count on a non-GAAP basis.
Speaker Change: In Q1, our gross margin was 88, 7%. This compares to 89 nine.
Speaker Change: <unk>, 9%, a year ago, and 89, 4% last quarter.
Speaker Change: Turning to expenses first quarter sales and marketing expenses were $32 $6 million or 58% of revenue.
Speaker Change: Q1 research and development expenses were $13 $9 million or 25% of revenue.
Speaker Change: First quarter general and administrative expenses were seven.
Speaker Change: $8 million or 14% of revenue.
Speaker Change: Operating loss for Q1 was $4 $2 million for negative seven 4% operating margin compared to an operating loss of $6 7 million or negative 13% operating margin a year ago.
Speaker Change: Our profitability improvement was and will continue to be driven by the benefits of operating leverage as we scale and proven sales and marketing efficiency and disciplined focus on costs.
Speaker Change: These improvements were partially offset by foreign currency fluctuation since we provided our Q1 operating loss Allied which resulted in $550000 headwind to operating loss or a 1% headwind to operating margin.
Speaker Change: Net loss attributed to common stockholders for Q1 was $3 million or negative six cents per share.
Speaker Change: Turning to the balance sheet and cash flow. We ended Q1 with $141 8 million in cash cash equivalents and short term investments.
Speaker Change: We remain well capitalized to execute against our long term growth strategy.
Speaker Change: Our remaining performance obligations or RPM totaled $239 $6 million at the end of Q1 an increase.
Speaker Change: Of 9% year over year, we expect to recognize approximately 66% or $158 $7 million total RPM.
Speaker Change: As revenue over the next 12 months.
Speaker Change: Representing growth of 16% year over year.
Speaker Change: As a reminder, we experienced fluctuations in our RPT balances due to a host of factors.
Speaker Change: Crude and renewal timing as well as changes in average contract duration.
Speaker Change: Operating cash flow for the first quarter was negative $6 $8 million free cash flow for Q1 was negative $8 6 million or a negative 15, 3% free cash flow margin.
Speaker Change: Now I will provide our guidance for Q2 and the full year fiscal 2026, as Matt mentioned, we started the year with strong momentum and our pipeline of large strategic opportunities continues to grow. In addition, we continue to be pleased with the growth of capella and expect migrations as well as growing consumption.
Speaker Change: To be significant drivers for us this fiscal year, along with ongoing investments in product capabilities and strengthen in our partner ecosystem.
Speaker Change: And as a reminder, our fiscal 2026 renewal pool is both larger and more evenly distributed between the first can second half of the year than in fiscal 2025.
Speaker Change: With these factors in mind for the second quarter of fiscal 2026, we expect total revenue in the range of $54 4 million to $55 $2 million a year over year growth rate of 6% at the midpoint, we anticipate a or are in the range of $255 8 million to $258 $8 million, which.
Speaker Change: Represents 20% growth year over year at the midpoint, we expect non-GAAP operating loss in the range of negative $5 1 million to negative $4 $1 million.
Speaker Change: For the full year fiscal 2026, we are raising our revenue and <unk> are our outlook. In addition, we are lowering our operating loss outlook, excluding the impact of foreign currency fluctuations since we provided full year guidance in February.
Speaker Change: We now expect total revenue in the range of $228 3 million to $232 $3 million or year over year growth of 10% at the midpoint, we expect a or are in the range of $279 3 million to $284 $3 million representing year over year growth rate of 18%.
Speaker Change: The mid point.
Speaker Change: Our revised full year, our outlook includes an additional $3 6 million.
Speaker Change: Tailwind from foreign currency fluctuations since providing full year guidance in February and finally, we expect our non-GAAP operating loss in the range of negative $15 5 million to negative $10 $5 million inclusive of a three and a half million dollar headwind to operating expenses from foreign currency fluctuations.
Speaker Change: We are focused on continued profitability improvement driven by leverage as we scale and disciplined focus on costs, we remain committed to driving free cash flow and being operating income positive in fiscal 2027.
Speaker Change: With that Matt and I are happy to take your questions operator.
Speaker Change: Thank you will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Hugh You May Press star two if you'd like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.
Speaker Change: Pressing star one.
Speaker Change: Our first question today is coming from Matt Hedberg from RBC capital markets. Your line, there's a lot.
Matt Hedberg: Great. Thanks for taking my questions guys. Congrats on Q1, not an easy environment at all.
Speaker Change: Matt I wanted to start on the macro side you mentioned in your prepared remarks that you didn't see any real impact from macro in Q1, I just wanted to double click on that.
Speaker Change: And asked about how customer conversations are going and how those how those conversations trend trended through may.
Speaker Change: Hey, Matt good to hear from you and I appreciate the commentary, we're certainly excited about the start to the year.
Speaker Change: Look as it pertains to how we're approaching.
Speaker Change: Current economic environments.
Speaker Change: We have to step back and.
Speaker Change: Take advantage of the strategic platform that we're providing in some some broader dynamics around.
Speaker Change: AI in the future of application development and those things hold true we've been talking for some time about the pressure in the selling environment that manifests itself in terms of longer sales cycles and higher level of deal scrutiny and I think those things persist and me have been slightly magnified over.
Speaker Change: Last quarter in light of conversations that we're all having having said that I think we've talked about the health of our pipeline and how strategically position. We are in the market right now with the dynamics that I mentioned and so I'd say on the balance.
Speaker Change: The pipeline and our ability to execute against that.
Speaker Change: Offset any specific incremental challenges on on macro as we.
Speaker Change: Executing in the quarter.
Speaker Change: That's that's really great and I guess, maybe just a follow up to that you know there's a lot. That's also in your control. Despite the macro was on I noticed in your prepared remarks, you did spend some time talking about go to market improvements paying off.
Speaker Change: I'm wondering if you can sort of summarize those but also the new free Capello here I'm wondering how that might help grow your pipeline even faster as you target develop as you're talking to developers.
Matt Hedberg: Yeah. So a couple of things on that Matt I think you know from a go to market perspective, we've talked about the importance of strategic accounts and continued adoption of Capella I think the teams have done a great job of executing on both.
Speaker Change: Going back to the macro one of the big selling points of our platform is better total cost of ownership.
Speaker Change: Against competitive solutions and in fact, even demonstrating even better T. C O with with Capella. So I think that's critically important as we think that about what is the catalyst for new application growth with existing customers and new we continue to enhance.
Speaker Change: Offerings for developers to really lower the barrier to entry and trial with the couch base and Capella platform and we've been working hard at those specific offerings, starting with starter packs, but really building out the free tier wherever the past couple of quarters we've had.
Speaker Change: Enhancements set that are materializing in top of funnel demand.
Speaker Change: Those enhancements were things like Capella IQ the developer co pilot social sign on.
Speaker Change: Standing at two of perpetual free tier and then this quarter I'm, adding credit card transactions and this is all about really enhancing our ability to attract developers were in that were there and that kind of learning experimentation proof of concept phase.
Matt Hedberg: And the leading indicators, Matt are really great.
Matt Hedberg: As a matter of fact, the volume that we're seeing on trials is up significantly year over year, and we think that that's a.
Matt Hedberg: A great leading indicator.
Speaker Change: Future demand and application growth again in existing and new customers.
Speaker Change: Thanks, a lot Matt best of luck here.
Sanjay Singh: Thank you next question today is coming from Sanjay Singh from Morgan Stanley. Your line is that life.
Speaker Change: Great. Thank you got the June answer since you'd thing.
Speaker Change: Maybe one question to start with on the water for Bill.
Speaker Change: Looking at your results obviously strong.
Speaker Change: So it's a lot of your resilience in the market I think total revenue came in maybe a little bit softer than some would have expected and I think that's sort of surprising, particularly in light of the strength that you saw with large strategic customers. So could you just highlight a little bit what's driving the delta there between <unk> and revenue again this quarter.
Matt Hedberg: And then maybe for Matt just.
Matt Hedberg: A higher level question I mean, given your.
Matt Hedberg: Leadership in the product category, both relate to AI, but then also mobile and database management more broadly.
Speaker Change: You've obviously introduced MCP server and that sort of a bigger focus on AI agents. Although what are you seeing sort of in those AI agent workloads, if youre seeing any sort of been extra mentation phases today, and then over what time period do you think those categories like AI agents, where there's clearly a lot of buzz.
Speaker Change: Could actually be incremental too.
Speaker Change: Capella and couch based revenue growth.
Speaker Change: Listen this is Matt let me just let me jump in and unpack the question a little bit because I think there's a lot there.
Speaker Change: First of all.
Speaker Change: I would reinforce the importance of <unk> is our leading metric. It is the best driver of the business and we feel great about the performance.
We did perform better on revenue and I'll, let bill talk about some of the dynamics.
Speaker Change: And you know.
Speaker Change: Where there is more to the story there I think as it pertains to why we were so successful with the quarter coming off a great Q4, it's because developers are really looking at us within enterprises as a strategic platform for the future of Gentex application development and.
Speaker Change: We're probably not having any conversation around the world, where we're not positioning our platform in an AI world and I think customers are realizing the benefits of our platform. How we were architecturally designed for for this moment and then the incredible innovation that the teams are bringing to bear within the platform.
Speaker Change: Round AI services embedded factor.
Speaker Change: Inference at the edge and in addition to.
Speaker Change: Other other aspects of the platform. So I think that's without question.
Speaker Change: Having an impact on the success, we're having in the market, obviously with a lot more to come specifically on a on a agents, which we can go into more as we go Bill do you want to comment on the revenue important yeah. Thanks for the question Yeah.
Speaker Change: Just to start with Capella and our enterprise products definitely are very different patterns of recognition, it's important to understand these but.
Speaker Change: The enterprise product comes with an upfront license fee.
Speaker Change: And has been recognized straight line, where capella usage very much tied to our.
Speaker Change: Our customers' business, but when you taken those factors and then our migrations the migrations definitely create kind of a headwind to revenue it changes.
Speaker Change: The pattern of recognition that we've had from our <unk> and <unk>.
Speaker Change: Enterprise customer.
Speaker Change: Migrates over to compel us changing that recognition and there's essentially a delay in revenue that we experienced during the period of migration and plus the migrations theres a ramp in phase typically where it takes a while for them to get them into production and essentially up to more of a steady state type.
Speaker Change: So all of that.
Speaker Change: Has the impact of lower in revenue.
Speaker Change: And then the other another factor is the service revenues is an area that.
Speaker Change: We've seen declines there hasnt been as much focus.
Matt Hedberg: So for all those revenue is a very different pattern as Matt mentioned, that's one of the reasons. We believe they are <unk> is a better.
Matt Hedberg: The indicator of our performance of our business. So hopefully that helps yes, and as a reminder, those will converge and we've talked about that manifesting next year. So although those will start to come together and it's a timing dynamic, but certainly we are very pleased with the pace and success of migrations were.
Matt Hedberg: People are seeing the value and not just couch based but the the.
Matt Hedberg: The Capella platform.
Matt Hedberg: Makes sense. Thank you.
Speaker Change: Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Howard Weil from Guggenheim Securities. Your line is that life.
Speaker Change: Great. Thank you and congrats on a solid Q1 guys Matt.
Howard Weil: Matt I wanted to ask you know notwithstanding the strong Q on Q1 results, there's been growing chatter in the investment community about Postgresql versus no sequel databases, and this is especially given the.
Howard Weil: The recent acquisition side, I, Snowflake and data breaks, which I'm sure you saw I wanted to get your thoughts are you concerned at all about postgrad databases and their ability to support J found data types, which if you couple that with the addition of a vector and hybrid search capabilities.
Speaker Change: That's resulted in potentially more for medical competition or is this completely off base.
Speaker Change: And I guess when you look at your are your prospects like are they actively evaluating couch base against postscript alternatives or is that just not the right starting point.
Howard: Hey, Howard good to hear from me and again I appreciate the kind words on the quarter and I'm glad you asked that question.
Speaker Change: Conversation that.
Speaker Change: We're having quite a.
Speaker Change: Quite many times with the investment community in particular, yes, we did see the acquisitions I think first and foremost I think that points to the importance of databases as it pertains to applications and application development and in a world that said I think it's really important to study the applications that.
Speaker Change: These databases are architected to support.
Speaker Change: And we've talked for a long time about our focus on critical applications that require performance scale and cost were things like downtime and complexity not only can cost companies in terms of revenue, but poor customer experiences and.
Speaker Change: Pretty significant downside to their business.
Speaker Change: As you can imagine and so I think it's critically important to put in the context of the application that a particular.
Speaker Change: Database is built to support and we are very comfortable with our level of differentiation memory first architecture. The fact that we have integrated data services I think it's one thing to support something like Jason or.
Speaker Change: Vector it's quite another thing to have that be the format in which you are architected around or the way in which we are fundamentally embedding vector into all aspects of our platform. So we're very mindful of the dynamic I think it may be having a bigger effect in other parts of the market.
Speaker Change: And much less so on critical applications, where these requirements.
Speaker Change: Literally dictate whether an application can perform and meet the fundamental SLA.
Speaker Change: We continue to increase our lead from our perspective based on the dynamics that I mentioned.
Speaker Change: Got it that's super helpful and just.
Speaker Change: Just as a follow up on.
Speaker Change: On the back of your comments about a couch spaces differentiation as you land more of these strategic accounts as you mentioned are they consistently trialing capabilities like better search and calling for service and are they building. This these use cases into their initial commitment, thereby giving you confidence.
Speaker Change: The new apps built on these services will scale into production and lead to future expansions.
Speaker Change: Yeah look I think people understand that we are a platform.
Speaker Change: And we've been carefully architected to support incremental features for some times.
Speaker Change: As you know only magnified with AI and what we've done with Capella IQ and AI services and.
Speaker Change: Additional capabilities that will be coming to market customers. As an example may start with a web based application with an idea to deploy our edge capabilities as they push application growth and I think what youre seeing in the outstanding AOR performances.
Speaker Change: The financial realization of us monetizing application growth where customers come in with an initial use case, they grow that use case and expand to many many more applications.
Speaker Change: Whether that be on enterprise or Capella, where we have an outstanding consumption quarter. So no doubt about it we are pitching things are pitching the couch base offering as a platform selling the many features and sitting down and having strategic discussions with customers on how they can get utilization.
Speaker Change: Out of the many services that the platform so conveniently integrates and makes that much easier to to us via capello with our innovation efforts.
Speaker Change: Great. Thank you Matt.
Speaker Change: Thank you. Your next question is coming from Mike. She goes from Needham and company. Your line is now live.
Speaker Change: Great. Thanks for taking the questions here guys.
Speaker Change: Matt just to come back to the prepared remarks I just wanted to follow up it sounded like you saw a good expansion of existing workloads as well as new workloads coming online.
Speaker Change: And I just wanted to circle up on that point, specifically are you seeing.
Speaker Change: An acceleration or.
Speaker Change: Better environment better behavior coming from those workloads.
Speaker Change: Again, just if you could a hashed that out for us, especially in the context of the current macro.
Speaker Change: Yeah look I think fundamentally what we're so excited about and in Q1 and the general momentum in the businesses.
Speaker Change: Mindset that we have on our go to market perspective, our new applications.
Speaker Change: And the platform is set up in such a way that once we satisfy the demands of an initial application we make it very easy to deploy the next app or even micro services in the context of a much broader applications.
Speaker Change: Somewhat combines with Howard.
Speaker Change: <unk> questions on the capabilities that we can that we can bring together so.
Speaker Change: So I think the.
Speaker Change: The growth in the business is all about application growth and that's customers deploying more and more on couch space and and in Capella and I think some of the dynamics on people evaluating sort of the economic return of platforms and consolidating into the ones that will be strategic on.
Speaker Change: A go forward basis plays to our advantage and we're benefiting in some large accounts, where we are the one being consolidated into because we can do things that other solutions can't and customers realize the roadmap of capabilities that we have on the forefront specifically targeted for <unk> applications.
Speaker Change: Where I think our differentiation is going to manifest itself, even more into the future.
Speaker Change: Great to hear and just one quick follow up on that I had but I know last quarter.
Speaker Change: I believe you were talking about Capella AI services can you just provide us a quick update as far as what youre seeing from a protraction standpoint or is it still relatively nascent just given the timing of our announcement of that.
Speaker Change: No look we're in preview and we're actively engaged with a lot of customers on.
Speaker Change: There are specific use cases and their pre production environments.
Speaker Change: Getting feedback putting that into the.
Speaker Change: The future roadmap and so.
Speaker Change: I'd say, we're pleased with the conversations that we're having with customers. Furthermore, we talked about the success of the of the free tier and I talk about the you know.
Speaker Change: Our momentum that we're seeing there I mean, the growth number just to give a sense tripled year over year in terms of new accounts created.
Speaker Change: Was up significantly from Q4 to Q1, and so I'd say the accessibility of the platform via the free trial combined with the roadmap of features.
Speaker Change: Again has us optimistic about that top of funnel, which again will manifest itself in new apps, which is with existing customers as well as eventual new logos.
Speaker Change: Terrific. Thank you very much guys I'll leave it there.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Our next question today is coming from Rudy Kessinger from D. A Davidson your line is that life.
Rudy Kessinger: Hey, great. Thanks for taking my questions guys I'm guess I'm curious, Matt when you look at this growth with these large strategic accounts can you talk about what it looks like.
Rudy Kessinger: From the standpoint of the actual workloads, you're adding are you adding.
Rudy Kessinger: One large workload here, you're adding a couple of workload is it more broad based and or some of these customers really leaning into couch based as one of their primary databases.
Rudy Kessinger: But just love to hear some more color about what that looks like.
Rudy Kessinger: Really good to hear from me and I. Appreciate the question look I think when we talk about strategic accounts the level of investment that these customers are making.
Rudy Kessinger: We typically have an inventory of tens if not hundreds of applications wherever deployed or where people are planning future growth.
Rudy Kessinger: And so I'd say, while somebody may talk about E. Commerce in general that can be made up of multiple applications that they talk about their customer management platform that can be made up of multiple applications and where we get really excited is where we have both.
Rudy Kessinger: Bottoms up groundswell appreciation for what we can do from developers as well as top down appreciation for the Tcl benefits and strategic nature of the platform and when we hit that intersection right with you with the appropriate focus hence, hence the kind of emphasis on strategic accounts, we can really do.
Rudy Kessinger: Get ourselves adopted as a strategic platform and unlock that application growth, where we get disproportionate expansion over time because.
Rudy Kessinger: People are really leaning into us says.
Rudy Kessinger: As a default and strategic platform for a subset of applications.
Rudy Kessinger: And those conversations then become broad across the enterprise, where we go from maybe a particular line of business or buying center in and really expand.
Rudy Kessinger: Across these large company. So when we hit success, it's really materializing as as a strategic a strategic platform that is appreciated by multiple personas within these large enterprises.
Bill Carrie: Okay, and then maybe one for bill or Matt if you want to chime in as well.
Rudy Kessinger: If we adjust for the FX tailwind on the quarter and for the revised full year outlook.
Rudy Kessinger: It looks like the full year, our guide is being taken up about $1 6 million versus the 3 million FX suggested Q1, so were there any.
Rudy Kessinger: Early renewals that pulled forward from Q2 into Q1 or just any color you can add to that time.
Speaker Change: Yeah, Rudy nothing early to speak of.
Rudy Kessinger: I think you know last quarter, we talked about the health of the pipeline coming into Q1 in the first half.
Rudy Kessinger: And quite frankly, I think we were very excited about you know how we executed against that looking at the first half specifically on strategic accounts and then we really saw benefit on capella consumption quite frankly.
Rudy Kessinger: Probably the highest rates that we've seen so far which we've worked really hard to deliver against I think as we always do we want to take all factors into account as we approach guidance and be prudent and put out numbers that we can at a minimum.
Rudy Kessinger: If not beat and so we.
Rudy Kessinger: We feel very good about raising the numbers for the year certainly in today's environment. We continue to have a healthy pipeline at the same time, we want to be.
Rudy Kessinger: Prudent and balanced as we as we factor all all dynamics at.
Speaker Change: Great. That's very helpful. Congrats again on the strong quarter. Thanks.
Speaker Change: Thanks, Rick.
Speaker Change: Thank you next question today is coming from Brett Breslin from Piper Sandler Your line is now live.
Speaker Change: Hi, guys. This is Hannah Rudolph on for Brent today, nice to see that strong net new <unk> in Q1.
Speaker Change: Just going back to something you said in the prepared remarks, you mentioned customer count decline was partially driven by some churn and customers with the starter packs have you seen any commonalities across this cohort of customers that trend and have you made any changes to the starter packs as a result.
Speaker Change: Yeah. So good.
Speaker Change: Good to hear from you and certainly appreciate this question I'm glad we have a chance to unpack that.
Speaker Change: Look one of the new offerings that we've come out with to sort of generate demand top of funnel, where one in five K starter packs.
Speaker Change: And we're at the point now where we're at about at an anniversary of that and so is.
Speaker Change: As it pertains to the net logo count we actually had a sort of typical gross number of ads across enterprise and capella offset by more churn in the starter packs because that one year anniversary now the way to starter packs were used word developers that we're doing proof of.
Speaker Change: <unk> or initial application build out and because we didn't have a free tier. They may have stayed on those starter packs for a little bit longer now they have an option to move into the free tier, which quite frankly, we're pushing as the better experience for developers. So I think you have.
Speaker Change: The combined set of factors there now as it pertains to the starter packs, we did see some pretty significant success with them in identifying customers that went from pre production in a pretty significant deployment and as we look over the past few quarters, we actually have seven customers that start.
Speaker Change: It out on that one in five K that are now over 100, K a R. R and two of those that are exceeding 500, K a R trending towards a trending towards a million and so I think that's indicative of is expanding top of funnel and <unk>.
Speaker Change: Working hard to identify where applications are ready to move from that proof of concept into production.
Speaker Change: And quite frankly, we're learning about the appropriate conversion rate says as we build out that demand and materialize it into.
Speaker Change: New customer and new application growth.
Speaker Change: Perfect totally makes sense and then as you think about capturing new strategic opportunities earlier on and investing in top of funnel I guess or are there still changes and investments you'd like to make and then how do you think about walking from that 58% of revenue from sales and marketing to the target level of 38% to 40%.
Speaker Change: Yeah look we're constantly making adjustments, where where we think we can yield better results on the margin. We talked about you know focus on strategic accounts.
Speaker Change: More digital demand our focus towards new developers.
Speaker Change: And we will continue to evaluate those things as we go but rest assured we remain very convinced.
Speaker Change: Committed to delivering leverage in the model.
Speaker Change: And we've talked about the targets that we have going into next year on <unk>.
Speaker Change: Free cash flow and op breakeven, which we recommitted to so I think it's about <unk>.
Speaker Change: Maintaining expanding growth, but doing so with better efficiency, which you know.
Speaker Change: We continue to execute on on that balances as we go forward.
Speaker Change: Helpful. Thank you so much.
Speaker Change: Yeah.
Speaker Change: Thank you. Your next question is coming from Robert Symons from Rosenblatt Securities. Your line is now live.
Speaker Change: Hey, guys. Thanks for taking the question so yeah.
Speaker Change: Your initial guidance for the year had revenue smoothing once you and then picking up and accelerating over the course of the year and now you're kind of pointing to a pretty sizable drop too.
Speaker Change: <unk> the growth rate and then the second.
Speaker Change: Second half.
Speaker Change: 12% I guess he does it.
Speaker Change:
Speaker Change: Better understanding, what's causing that pattern of growth.
Speaker Change: Well, so let me comment generally and then.
Bill Carrie: Bill can pile on on the specifics where were trying to decipher. The first part of the question, we had a little bit of a audio pick up there.
Bill Carrie: Look I think what Youre seeing is the uptick in revenue growth rate as we get into the back half of the year as we see that convergence that we've talked about between revenue and an IRR.
Bill Carrie: And so I think that would be a that would be expected.
Speaker Change: Yes, it's a little bit what we alluded to earlier there is you know the migrations do create a lag in aid.
Speaker Change: Our growth versus revenue revenue essentially both convert and existing revenue streams of enterprise to Capella essentially you have are you losing revenue in the short term and then the migrations to the usage model. It takes a period of time to get speed, but as you referenced in the second half you start to see that uptick in your store.
Speaker Change: To see that convergence and we expect.
Speaker Change: Further to converge going into next year.
Speaker Change: So are you seeing more of those macro things happening currently and that's coming back in the queue to get the <unk> revenue number or is there anything else going on.
Speaker Change: We see migrations continue and we've been doing it over the last year, we'd expect them to continue going into next year and beyond we are fundamentally moving a large portion of our business to the compelling model.
Speaker Change: But you've kind of we're sort of in the biggest period, where you have the biggest disconnect and there. So although we expect migrations to continue we do expect some convergence going into next year due to less of it.
Speaker Change: Back there, but there will be there will be continue to be impacted but it'll catch up it won't be as disconnected. Yeah look we're working hard to were working hard to help customers with those migrations. It's it's a great outcome for us and a great outcome for them and.
Speaker Change: You know if if you look at the percentage of the business. That's capella, we have a lot of potential still to migrate and I'm personally I'm pretty excited about the strategic nature of discussions, we're having across the base and the potential that remains with with Capella.
Speaker Change: Great. Thanks.
Speaker Change: Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Thanks, operator, and thanks to everyone for joining US today, we're encouraged by our strong start to fiscal 2026 and are excited with the opportunities in front of US. We look forward to speaking with you again next quarter Goodbye.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Speaker Change: Yeah.