雅虎香港財經 MongoDB, Inc. (NASDAQ:MDB) Q3 2023 Earnings Call Transcript
MongoDB, Inc. (NASDAQ:MDB) Q3 2023 Earnings Call Transcript December 6, 2022
Operator: Good day, and thank you for standing by. Welcome to MongoDB Third Quarter Fiscal Year '23 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Brian Denyeau from ICR. Please go ahead.
Brian Denyeau: Thank you, Carmen. Good afternoon, and thank you for joining us today to review MongoDB's third quarter fiscal 2023 financial results, which we announced in our press release issued after the close of market today. Joining me on the call today are Dev Ittycheria, President and CEO of MongoDB; and Michael Gordon, MongoDB's COO and CFO. During this call, we will make forward-looking statements, including statements related to our market and future growth opportunities, the benefits of our product platform, our competitive landscape, customer behaviors, our financial guidance and our planned investments. These statements are subject to a variety of risks and uncertainties, including those related to the COVID-19 pandemic and the adverse macroeconomic environment and their impacts on our business, results of operations and clients that could cause actual results to differ materially from our expectations.
For a discussion on certain risks and uncertainties that could affect our actual results, please refer to the risks described in quarterly report on Form 10-Q for the quarter ended July 31, 2022, filed with the SEC on September 2, 2022. Any forward-looking statements made on this call reflect our views only as of today, and we undertake no obligation to update them, except as required by law. Additionally, we will discuss non-GAAP financial measures on this conference call. Please refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures to the most directly comparable GAAP financial measure. With that, I'd like to turn the call over to Dev.
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Dev Ittycheria: Thanks, Brian, and thank you to everyone for joining us today. I will start by reviewing our third quarter results before giving you a broader company update. We generated revenue of $334 million, a 47% year-over-year increase and above the high end of our guidance. Atlas revenue grew 61% year-over-year, representing 63% of revenue. And we had another strong quarter of customer growth, ending the quarter with over 39,100 customers. Overall, we are pleased with our performance and execution in Q3 despite the challenging macro environment. Let me give you a bit more context on what we saw in Q3. We had another strong quarter of new business. We added over 500 direct sales customers, and we keep winning new workloads in existing accounts from start-ups to Fortune 500 companies.
Our new business from Enterprise Advanced also significantly exceeds our expectations, which is particularly notable in this environment given that EA requires an upfront commitment. Turning to Atlas consumption trends. We have seen an improvement in Q3 versus Q2, albeit still below historical levels. Michael will cover this in more detail. Finally, retention rates remained very strong in Q3, demonstrating the mission-criticality of our platform. Indeed, our Q3 results are an indication that our value proposition resonates with customers even in a difficult macro environment. Let me remind you of the key pillars of our developer data platform. First, MongoDB enables the customers to unleash developer productivity. The more productive developers are, the faster the organizations can innovate.
The document model, which underpins MongoDB, has proven to be the best way for developers to work with data because it aligns well with how developers think and code. Second, MongoDB supports the performance and scale requirements of the most demanding modern applications. MongoDB is built from the ground up as a distributed platform and allows organizations to easily and cost effectively scale their applications to address the most exacting performance requirements. Third, MongoDB allows enterprises to remove enormous complexity and cost out of their technology stack. MongoDB is a general-purpose platform capable of serving a broad array of use cases, including transactional, time series, mobile, search and application-driven analytics. MongoDB continues to be the most popular modern data platform with developers.
In the last 12 months alone, our open source community server has been downloaded more than times from our website, which is more than in our entire company history through the beginning of 2020. And in Q3 alone, we had over 300,000 sign-ups for Atlas free tier, which is up 15x over the last five years. We also see growing evidence for how our value proposition resonates with IT decision-makers who are known for their focus on ROI, especially in economic environments, such as the one we're in today. Customers who are moving to the cloud at scale such as companies in the financial services industry are increasingly choosing MongoDB as their underlying data platform to modernize their application portfolio. IT decision makers value not being locked into any 1 environment.
And by building apps on MongoDB, customers preserve their ability to run these apps on premise, on any cloud and to easily switch between cloud providers. IT decision makers are also increasingly interested in consolidating vendors. By virtue of MongoDB's broad support for a wide variety of use cases as a general purpose platform, customers can run most workloads on MongoDB rather than a disjointed set of narrow point solutions that increase the cost and complexity of the data architecture. Finally, we continue to gain mind share with our partners, and we see them leaning into co-selling with MongoDB as they also want to leverage the popularity and value of our offerings. Starting with the cloud providers. All three hyperscalers now showcase MongoDB Atlas on their consoles to make it easier for the customers to sign up for Atlas given the increasing popularity of using MongoDB in the cloud.
A number of large systems integrators are in the process of setting up business units focused on MongoDB given the size of the growing MongoDB practice. A growing number of ISVs continue to build their products in MongoDB. We currently have close to 200 ISVs co-selling relationships, which is up more than 2x compared to two years ago. Our growing popularity has tangible benefits for our business, especially in periods of economic uncertainty. In times like these, customers typically default to vendors they know and trust and with whom they can consolidate spend while reducing overall costs. We see the current environment as an opportunity to establish ourselves as an enterprise standard with more of our customers. Now I'd like to spend a few minutes reviewing the adoption trends of MongoDB across our customer base.
The following customers are running mission-critical apps in MongoDB Atlas, leveraging the full power of developer data platform, incorporating services such as search, in-app analytics and mobile services. These include Toyota Financial Services, Ulta Beauty, Mediastream and Vodafone. Vodafone is the world-leading telecoms company with over 625 million global customers in 65 countries. Vodafone is creating hundreds of new cloud-native apps. Underpinning these apps as MongoDB Atlas provides a scalable, resilient and flexible data platform. Atlas also supports Vodafone's IoT ecosystem of 140 million-plus devices. MongoDB is a part of a suite of fully vetted tools that Vodafone allows developers to use to build any application. Several MongoDB customers are embarking on their digital transformation journey by choosing MongoDB Atlas and migrating from on-premise to the cloud, including American Tire Distributors, Schwarz IT and Volvo Group.
Schwarz IT, part of the Schwarz Group, uses MongoDB's Enterprise Advanced on-prem to drive innovation and fuel their own cloud service. With more than 13,000 locations across 32 countries and brands like Lidl and Kaufland, Schwarz Group is Europe's largest retail company. Their internal IT arm, Schwarz IT, works both internal teams and external customers to ensure smooth operations of their tech stack. Schwarz IT also runs STACKIT, a cloud provider that offers its customers all the benefits of cloud deployment while ensuring that data is stored in Germany under EU regulations. In 2022, STACKIT launched a MongoDB service to help their customers modernize apps and services and improve performance. Hugging Face, Okta, Washington Post, Cisco and L&T-SuFin, a B2B e-commerce platform, are currently developing a number of applications across different parts of the business and significantly expanded the use of MongoDB Atlas throughout their tech stack.
Hugging Face, a fast-growing AI company, migrated from MongoDB Community to MongoDB Atlas to scale their open source platform and online community for machine learning. Their company's shift to Atlas allowed them to rely on our developer data platform for software and security compliance, take advantage of chain streams to speed decision-making, simplify the infrastructure through a single control plane for managing data and reduce time spent on maintenance through Atlas' integrated services. In summary, I am pleased with our execution in the third quarter. We had another strong quarter of new business, demonstrating that our value proposition continues to resonate in the marketplace and with developers, IT decision makers and partners alike.
We are pleased to see a rebound in Atlas consumption in Q3, and continue to closely monitor usage trends. We remain focused on winning new workloads with new and existing customers, and are committed to profitable growth as we pursue our enormous market opportunity. With that, here's Michael.
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Michael Gordon: Thanks, Dev. As mentioned, we delivered a strong performance in the third quarter, both financially and operationally. I'll begin with a detailed review of our third quarter results and then finish with our outlook for the fourth quarter and full fiscal year 2023. First, I'll start with our third quarter results. Total revenue in the quarter was $333.6 million, up 47% year-over-year. As Dev mentioned, we continue to see a healthy environment for new business. Thus, this is confirmation that we remain a top priority for our customers, and our value proposition continues to stand out even in this market. Shifting to our product mix, let's start with Atlas. Atlas grew 61% in the quarter compared to the previous year and now represents 63% of total revenue compared to 58% in the third quarter of fiscal 2022 and 64% last quarter.
As a reminder, we recognize Atlas revenue based on customer consumption of our platform, and that consumption is closely related to end-user activity of the application, which can be impacted by macroeconomic factors. Let me provide some context on Atlas consumption in the quarter. Overall consumption trends improved compared to what we saw in Q2, though they are not back to historical levels. Specifically, there are a couple of trends worth noting. First, we saw a bounce back in areas that were below our expectation in Q2, namely the mid-market channel globally and our enterprise business in Europe. Second, we saw stronger sequential growth in underlying application usage in Q3 versus Q2, a trend observed across most industries and geographies.
We observed a similar pattern last year, and we believe that this may be an emerging seasonal effect. Turning to Enterprise Advanced. EA significantly exceeded our expectations in the quarter, and we have continued having success selling incremental workloads into our existing EA customer base. As a reminder, under ASC 606, the term license component of the entire deal value is recognized as revenue upfront. This leads to the increased variability and reduced comparability of our EA results and is particularly impacted by multiyear EA deals. This quarter, we benefited from more multiyear EA deals than anticipated. Turning to customer growth. During the third quarter, we grew our customer base by over 2,100 customers sequentially, bringing our total customer count to over 39,100, which is up from over 31,000 in the year ago period.
Of our total customer count, over 5,900 are direct sales customers, which compares to over 3,900 in the year ago period. Q3 was another very strong quarter of direct customer net additions. As a reminder, our direct customer count growth is driven by customers who are net new to our platform as well as self-serve customers with whom we've now established a direct sales relationship. The growth in our total customer count is being driven primarily by Atlas which had over 37,600 customers at the end of the quarter compared to over 29,500 in the year ago period. It's important to keep in mind that the growth rate in our Atlas customer count reflects new customers to MongoDB in addition to existing EA customers adding incremental Atlas workloads.
We had another quarter with our net ARR expansion rate above 120%. We ended the quarter with 1,545 customers with at least $100,000 in ARR and annualized MRR, which is up from 1,201 in the year ago period. Moving down the income statement, I'll be discussing our results on a non-GAAP basis, unless otherwise noted. Gross profit in the third quarter was $247.8 million, representing a gross margin of 74%, which is up from 73% in the year ago period. Our year-over-year margin improvement is primarily driven by improved efficiencies that we are realizing in Atlas. Our income from operations was $19.8 million or a 6% operating margin for the third quarter compared to a 3% margin in the year ago period. The primary reason for our strong operating profit results versus guidance is our revenue outperformance.
In addition, our operating profit benefited from the steps we've taken to moderate the growth rate of expenses as we prudently manage our investments in the current environment. Net income in the third quarter was $18.7 million or $0.23 per share based on 80.4 million diluted weighted average shares outstanding. This compares to a net income of $2.6 million or $0.03 per share on 78.5 million diluted weighted average shares outstanding in the year ago period. Turning to the balance sheet and cash flow. We ended the third quarter with $1.8 billion in cash, cash equivalents, short-term investments and restricted cash. Operating cash flow in the third quarter was negative $5.7 million. After taking into consideration approximately $2.7 million in capital expenditures and principal repayments of finance lease liabilities, free cash flow was negative $8.4 million in the quarter.
This compares to free cash flow of negative $9.2 million in the third quarter of fiscal 2022. I'd now like to turn to our outlook for the fourth quarter and full year fiscal 2023. For the fourth quarter, we expect revenue to be in the range of $334 million to $337 million. We expect non-GAAP income from operations to be in the range of $6 million to $8 million, and non-GAAP net income per share to be in the range of $0.06 to $0.08 based on estimated diluted weighted average shares outstanding. For the full year fiscal 2023, we expect revenue to be in the range of $1.257 billion to $1.26 billion. For the full fiscal year 2023, we expect non-GAAP income from operations to be in the range of $30.8 million to $32.8 million, and non-GAAP net income per share to be in the range of $0.29 to $0.31 based on 80.2 million estimated diluted weighted average shares outstanding.
I'll now provide some more context around our guidance. First, in Q4, we expect slower sequential Atlas consumption growth than we experienced in Q3, but better than what we saw in Q2. We're encouraged by the improvement in consumption trends we saw during Q3. But as noted earlier, we believe some of that was driven by seasonality from which we will not benefit in Q4. Second, given the significant outperformance of EA in Q3, we do not expect a sequential uptick in EA revenue between Q3 and Q4. Finally, on a full year basis, we expect a non-GAAP operating margin of 2.5% at the midpoint of our guidance, about a 1 percentage point improvement compared to last year. We have consistently demonstrated operating leverage each year since going public, improving margins by over 35 percentage points over that time period.
We will look to continue improving our margin profile over time, and we are pleased with our rate of progress this year. To summarize, MongoDB delivered strong third quarter results. Our new business performance and strong direct net customer additions indicate the robust underlying demand for our developer data platform. We are pleased to see an improvement in the Atlas consumption trends in Q3. We'll continue monitoring the environment and investing responsibly in pursuit of our long-term opportunity. With that, we'd like to open up to questions. Operator?
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