MongoDB, Inc. (MDB) Earnings Call Transcript & Summary

Wow, now -- great to have you. Great to have the team from MongoDB here. You just had -- given that it's topical, you just had an earnings this week [indiscernible] with that one, what would the [indiscernible] of your perspective here? And then just kind of take from here.

Great to be here. Good to see you, thanks for having us. I always look forward to this. Yes. So we reported earnings earlier this week. I'll give a quick summary for [indiscernible] everything. So it's another strong quarter. Overall growth of 30% year-over-year growth. Atlas growth was 36%. Atlas was in line with our expectations. It was another strong standout quarter for the enterprise, advance [indiscernible] the upside and we drove the beat. We feel really good about that. I think at the core of that is a run [ anywhere ]. So this is the idea that [indiscernible] 100% all in the cloud. People have different [indiscernible] and everything else so we want to make it easy to get the advantage [indiscernible]. So [indiscernible] there. New business environment continues to be strong for us in terms of getting new workloads, both from existing customers as well as logos. We continue to see [indiscernible] of existing customers and existing workloads grow healthily, but that's sort of more moderated. The rate that we've seen since the macro economic slowdown. I would add that continues to be stable low. And so I feel good about that. Let me call out, I'd say on the bottom line, strong profitability. [indiscernible] 80% so further reflecting the strength of the business. We could talk a little bit about that over time and then continue to feel as long with the outlook, the Q4 guide. We feel good about how we raised the guide by more than the beat. Some of that comes from really confidence in enterprise advance, as I said as we are tracking our expectations, but strong enough or seeing in the enterprise aside raised by more than the beat there. So overall, a really fun quarter.

Yes. And I wanted to stay on enterprise advance because like does -- maybe its just me and like you going way back. It does feel like the messaging is slightly changing. It seems like a little bit more like this seems to be more positive like you mentioned already the run anywhere like strategy, like what's driving -- is it surprising you, first question? Like have you seen the recent [indiscernible] in a row now? And then how sustainable is that benefit that you're kind of talking about?

Yes, it definitely surprised us and part of it really [indiscernible] on the customers, right? And ultimately, in our conversations with customers think about it, we're here just kind of work with them and people are in different spots of the journey. I think we've talked about this in different settings, but [indiscernible] like this, it's easy to think that everyone is all-in in the cloud because that's what everyone talks about, but the reality is there are a lot of workloads still on-prem. There are a lot of companies or industries that are more conservative, that [indiscernible] that are daunted by the prospects of moving to maybe delay in some of that macro concerns. Maybe they have regulatory issues, sovereignty issues, the whole wealth of things. I don't think it's going away anytime soon. And so what we've seen though is that while there may be this tendency about cloud and on-prem is sort of modern legacy, what we're seeing is that the decreased saving, I think, appreciation on the customer base that moving to the cloud is that people may aspect of modernizing or those are not anonymous [indiscernible] like modernize that obviously could probably more [indiscernible] to cloud. And increasing what we're seeing is people appreciating what would be, in this case, particularly enterprise TAM as sort of an on-ramp. My organization isn't ready or a regulator [indiscernible] whoever the dynamic is to move out. But we know we need to modernize that structure. We need to modernize our capabilities and really integrate more quickly, and that's where [indiscernible] comes in. So it's the feedback and that frankly is the great with a lot of companies.

And have you -- it's something like we observed is rather not work that like given that budgets are tight, you kind of -- yes, you probably -- you might not go to the cloud straight away because it's like double cost in a way initially because you have to run that [indiscernible] on cloud and then double. So then maybe just on as kind of modernize it there. Did you change -- that change in thinking -- like are you kind of changing your organization behaviors for? Or like how does your sales both engage with the client? Like was it more cloud pushing before and now you're saying like skip the deal or [indiscernible]?

No. I wouldn't say I think it's pretty clear that if you're a sales rep, your goal is obviously maximizing commission [indiscernible]. That is easiest, right, whatever [ stat ] is. It took having all the tools in the toolkit, if you will, is what's good for them. And so they'll go and they'll approach whatever is the fastest at the money, frankly. So they -- I think the default motion sort of presumes that you will want Atlas, right, and that you will be in a modern environment pretty quickly. If I'm the rep and I'm covering Barclays, I'm going to know. You're not going to move. That's not the thing I should be batting my [indiscernible] against the wall -- at the right time, obviously, sure. I don't want to be there. But people know their accounts and it's not hard to talk about [indiscernible] a miss or mister CIO, you should be first -- you should deploy it this way, right? Companies have a strategy. And so our folks which gravitate to want to support the customer and work with them and help achieve their kind of technology objectives so that they can drive technology as a [indiscernible].

Yes, yes. On that, just to give us an idea about sale, [indiscernible] cloud optimizations. I mean, how big is that market feel like, [indiscernible] Oracle in the overall home base, et cetera. Like and it feels like we haven't done that much because historically, we've been doing more like new workload and new [indiscernible] pretty well there. There were some modernizations but not that much. Can you talk a little bit about what you're seeing in terms of the opportunities there.

Yes. So there's a significant opportunity there tens of billions of dollars spent on relational and we continue to chip away at it and kind of have more and more success on an absolute dollars basis every year. But there have been some historic barriers. The way that I think about it is somewhat simplistically is if you're a CTO or you're running an engineering organization, that's probably a very expensive investment [indiscernible]. And you're going to want to maximize the [indiscernible] you can [indiscernible] experience, whatever it is it might be, right? And so typically, we would want to rebuild something just to rebuild it, right, just because it could be better. There has to be some sort of pain point. The analogy that I use often in financial settings is you'll build a model and you build a model, it becomes, IBM, whatever it is, right? You build that model just like an application built [indiscernible] spreadsheet. You build your IBM model and [indiscernible] instead of, " Hey, here's what it is." And then what happens is they change that the reporting, they do an acquisition, there's a divestiture and you're doing all these on the side to kind of like slam in the numbers and make it more [indiscernible]. The model becomes a performance, you need to rebuild it right? That's exactly the process that an application owner goes to with the application. It is working or it's a little bit hard for [indiscernible] like you'll keep with it because you want your new model of a new company to cover. But at some point, [indiscernible] "Screw it, I have to rebuild this thing." I think that happens. So there has to be a pain point. [indiscernible]

Yes, yes. Okay. And then from the U.S. [indiscernible] and now obviously, like more for your own sanity not predicting a quarter, Atlas is better because it seems more predictable.

Certainly 6.0.6 adds some complexity.

Yes. So [indiscernible] companies for EA. How do you get comfortable and not [indiscernible] in your guidance? I just feel at the moment, you kind of take all of those [indiscernible] out come and then we have all the nice [indiscernible]. How do we think about that?

So we -- while we don't guide by product in part because the 6.0.6, we have to have a deal. And we have a view around product mix. We'll have a view around multiyear, right, because that can be a factor that [indiscernible] from a point [indiscernible]. And we try and do kind of closest to the pin, if you will. But because of those 6.0.6 variability and the lumpiness of the recognition of the [indiscernible] revenue, sometimes that's where you can have surprises. And so that's kind of [indiscernible]. Actually one thing let me just add on the Atlas side because I think there's probably a risk or temptation that someone will assume that because Atlas is consumption oriented that, that is virtually identical to [ ratable ] that is actually driven by the underlying [indiscernible] in the database. And the consumption [indiscernible]. And so there's some variability in there and Atlas, large and quite [indiscernible] pretty new. And if you think about the data and [indiscernible], if you're trying to get like seasonal trends and things like that, we only have [indiscernible] talked about in Q3, it was like that tends to be a quarter, whereas Q4, [indiscernible] weaker quarter in terms of what the growth we see from existing companies.

Yes, yes. And then last one for me. I want to maybe remind us on the 6.0.6. Like how much license revenue do you recognize? I think it's 25%.

Yes, roughly 25%. So the simple way to think about it is if you have an annual contract [indiscernible] recognize roughly $65 upfront and [indiscernible] monthly over the next months. With the multiyear deals come in, and this is one of the reasons why we sort of called this out sort of the results and the difficulty to compare because if you had a 3-year deal. Let's imagine for a moment that the year deal for simple math is 100, 100, 100. What you do is at the start of the deal, you wind up recognizing $75 of term license revenue upfront. And then the remaining [ $225 ] over the subsequent 36 months of the contract, right? And so that's kind of what creates the lumpiness of the impact for multiyear deals [indiscernible] calling out because it does really affect the numbers, particularly when you look at year-over-year growth rate. And I'm reasonably confident that all of you totally understand, okay, next year, I need to remember the 75 [indiscernible] denominator. But I think the key thing that sometimes people forget is that current year's numerator won't have the 25 than it normally would have had from people just [indiscernible] tenure deals.

Yes, yes. Right.

And so thinking through that and what that means [indiscernible] and that's kind of why we try to call it out for people and belabor the point to make sure that they're doing the [indiscernible].

In the year later...

You could. But if you upsell, it would only -- you will basically only get the [indiscernible] all the new stuff. So if I sold you 50 licenses out of the gate, I sold you another 10, I can do it another 10 but the 50 are kind of baked in the [indiscernible].

And then one question is like you at the moment, [indiscernible] like what do those guys on multiyear deals when you say, I want 1 year. Like it's a bit odd.

Yes. So it's interesting. It is an event like it's not something that we're trying to force push. I think when it comes down to it, the multiyear deals, specifically the multiyear deals that happen to back end to be the EA. I think it's in the sort of Alibaba, OEM licensing deals. It's easy to understand why they would want a multiyear deal [indiscernible] of access to the license. But for customers, I think it's a lot of organizations that had to do more or to have organizations here per comfortable annually upfront for the license kind of cash optimization thing. And frankly, there's a lot of negative baggage of the [indiscernible], including by some of the legacy players around pricing. And so people like there clearly and that is expecting to consume and keep consuming and consuming more longly debate. They want a price certainty. I think the tide there was sort of inflationary backup, probably doesn't hurt because other vendors have been raising their price. And so if I can just get some certainty, I know we're going to use it, why don't I try and lock that in and lock in my kind of future ramp it comes from you. [indiscernible] so hypothesis, someone and a little bit.

Yes, fair. And I know I thought the expanding part and I'll come through that next, but I want to kind of quantify one more thing before. And I apologize for the question in that respect. On the other revenue, obviously, not this in Q3 but in Q2, we had like the large [indiscernible]. Then when you need to model next year, we need to be aware, like with that kind of one-off kind of large -- like what else is new? And do you have any visibility for -- could that be like more things that you know, but we don't know yet that kind of out next year or have or like impact those numbers? It just looks like a steady, steady lump sum. Steady, steady, steady.

You're right. That's a tough compare for next year. But more generally, to my point, all the multiyear deals which we've seen more this year compared to prior as an EA also [indiscernible].

Yes. Okay. So you're not going to tell me there's another [indiscernible]. No, Okay, I tried. So if you think about Atlas now, like [indiscernible] a little bit. So really good solid numbers. The cup, as you said, in line with kind of your expectations to some degree or actually our expectation as well. What do you see in terms of linearity in the quarter? Like how did that come together for you?

Yes. So the key things to keep in mind about linearity growth for Q3 or Q4 really has to do a season. So we see the back half of Q3 stronger than the beginning of the year. It's driven by the underlying usage of the applications, and that's exactly right. We basically see applications across our portfolio experience, faster usage growth and the summer is over. Go back and interacting with the apps in their lives more and that drives the seasonal improvement in Q3 versus Q2 and the first half of Q3. If you think about Q4, it begins like the regular quarter, if you will. But then it comes to the holiday slowdown and it's exactly this [indiscernible]. During the holidays, we see a meaningful slowdown in the underlying of the application. And as a result, we see more growth in run all the people notion there certainly. And that actually quite nicely related with our revenue.

Yes. And -- it's not a critique on you guys, because you're [indiscernible] that as well. Remember last year, we kind of learned about seasonality that you learned like Atlas, which you choose like last Q3, slightly more. This year, we hit last like [indiscernible]? Like can you talk a little bit like you put some [indiscernible] why was it maybe more or less last year and maybe less this year. Like you think about next year and we try to model that like...

That's right. So first of all, I would repeat that Atlas is still very young. And then kind of divide the world into pre-COVID and post-COVID. We really only have for anything in quarter 2 and now in some cases, 3 data points that I understand [indiscernible] so for a trained statistician that is far from [indiscernible] a significant example to what we call it, but we're trying to be as [indiscernible]. So what we've seen is the last Q3, including this one, we've seen a seasonal improvement that we see it driven by [indiscernible] usage growth. And we expect the seasonal improvement [indiscernible] prior Q3. And the reason for that is that generally speaking, we see less variability in consumption this year compared to prior year. It just feels like [indiscernible] bit more unsettled. Last year, customers were trying to address their strategies. And so forth, we're in this slower growth macro effect as well. But just as we look at literally standard deviation week-over-week growth, it's more an issue. And that reason we expect less of a recovery in Q2 than now. I think it's worth adding our business is quite diversified. When you think about the types of emotion, industries, sectors, geographies and everything else. And that has a portfolio effect. And as you get a bigger base of applications and a more -- and still healthy diversified base, you would expect that variability to be[indiscernible] right. If we were -- if we only did e-commerce, we might expect things to go up, but we only did internal applications and [indiscernible]. And so having that breadth of and most of the applications that also sort of contributes to this increase.

Yes, okay. And then the -- if you think about it, like the number one, the beta has like -- you remember like at the beginning of the year was all about cloud optimizations and [indiscernible] there. Maybe starting point of discussion, maybe remind us like how your consumption is maybe different than like a small lake or like a Datadog.

Yes, so we see a very tight correlation between the underlying [indiscernible] use of growth and the gross electromagnet shouldn't really be a surprise because companies are building applications, they're enjoying expensive development resources. They fundamentally want to see that asset. And if that app happens to be successful, then it grows and when it grows, how much they pay us over time. And again, they're very, very [indiscernible]. And if the app is not successful, the fact that they're not paying us as much as they would otherwise actually course of this [indiscernible]. And so we've really experienced optimizations the way we hear other people talk about it. When we talk about optimization, how we define it, at least, that meaningful reduction in spend without affecting use. And that's not really possible to do in our comfort zone, because it was very, very highly in line. So what we've seen is when we've seen a very clear change in the macro environment in the second quarter of last year, seeing the underlying usage growth of the applications on our platform to slow down. And with it, the revenue growth of Atlas revenue, ARR and revenue to slow down. And with the seasonal puts and takes, we've been in that slower but really ever since -- and that's sort of our dynamic in the principal goal of our business and it's different than other people who are seeing those continuous moment when customers that spend as there's not our dynamic.

Yes. And then how do you think -- like the big question we all have like, are we on the more consumption-driven names? Are we stabilizing? Are we stable? Are we getting better, et cetera? And here I just wanted to find out like how did you [indiscernible] as your business think about like 1 question I get a lot is like people look at year-over-year. And there -- it's like [indiscernible] it hurt because it looks like it's a cost the right number. But then I talked with other conduction guys, [indiscernible] you can't look quarter-over-quarter, it doesn't make any sense you look [indiscernible] then just obviously it [indiscernible] like how do you like how do you feel like that?

We agree that, that is a consumption business that is very closely driven by because of the underlying app quarter [indiscernible]. We always have call out the diamond sort of like the starting ARR in the prior quarter, consumption like the revenue. There are other factors. In Q2, there's 3 more days. In this Q4, we called out the unused commitments from the prior year, just reminding people. So there are puts and takes that we try to kind of give you a map for the journey but really sequentially, it is a better way to think about it. I would just add, we did that point. And obviously, you are a more granular basis quarterly. So we look at the base of the business on a week-over-week basis, right? One of the reasons why we showed that chart at our Investor Day, that showed the kind of clear step down from the macro and then sort of consistent with the seasonal variation stabilization that we've seen.

That makes sense. And then the follow-on question. So are we kind of -- like, would you agree with like it's stable, like it happens [indiscernible] customer like what you're seeing there?

We've been really seeing that for a while.

Yes. Yes, exactly. And then how do we think about that -- if you ever have hopefully, hopefully get to recovery [indiscernible] people won't go reading model numbers like how you think about that? Because this [indiscernible] look [indiscernible] the underlying traffic increases, then you need to increase [indiscernible] as opposed to [indiscernible] and wait speak about you.

So that is the first thing. No, you're right. not the worst, but just the underlying layer of application would be the primary governor of Atlas consumption. And your macro -- you're ultimately the driver of sort of where we do that. We are obviously [indiscernible] control and we spend a tremendous amount of time focusing on say, "Are we acquiring new workloads? Are we doing that if the are they the same quality or better than what we've done in the past?" But workload has been very small. And so as you think about near to medium term at any point in time, the growth is primarily driven by what you already have in the base [indiscernible]. And then the other thing, we get this question sometimes which is, "Well, is this the normal? " Or -- and we just had that kind of post-COVID [indiscernible] some people referred to? Or was that normal and the current environment is temporary [indiscernible]. And at least in our number, we have seen pretty consistent macro slowdowns [indiscernible] in terms of macro bonanza in fiscal year '22, and this is the new normal. We've kind of been at a consistent level and that we've [indiscernible] at the lower level as you think about recovery in the future, the other thing just to keep in mind is like the business is bigger and more mature. So this towards kind [indiscernible] going forward.

Yes. Okay. And then the one thing I [indiscernible], you mentioned the 350 customers that kind of got moved [indiscernible] and I'm asking because the other thing is like, and you look at customer additions and they're slowing down whatever. Talk a little bit about the 350, what happens there and [indiscernible] ?

Yes. So we moved 350 customers out of our self-store customer account. [indiscernible] ARR. But the reason we called it out specifically because of the impact of the [indiscernible] addition. But what it was is two things. One is we view the self-serve customer base particularly as we set up for next year. And we concluded that a portion of the customers were actually [indiscernible] pretty earlier existed customers. So we [indiscernible] only once [indiscernible]. And then the other thing is we've changed this in the margin this year as we do and think over time. And it was at a very low paying customer. They no longer pay out 3 days to grow because of the tax so they no longer qualified to be pay income. Over two [indiscernible] impact [indiscernible] 350 is it's irrelevant [indiscernible].

Yes. Yes. I think if we didn't report customer accounts, this would really not be telling about this.

Yes. And I think the other thing on the customer account that got some attention which was interesting was it was a very strong quarter for addition of customers above 100,000. And again, that's more an output than an input. Kind of like engineers [indiscernible] sales incentive perks, getting over some threshold. But I do think it's an indication of the strategic nature and importance of the platform and that had our really strong quarter.

Yes. Okay. I only have like 4 minutes left. So we need to capture AI and the margins. So I'm going to be upfront. If you think of like on the AI side, like the talk a lot about AI would drive you [indiscernible] and there's going to be [indiscernible] do you see that starting already? Or is that kind of more -- you want to be more an output. So not enough but you know I mean this is coming like step 2 basically. And hence, now and I shouldn't read you mind.

Yes, you should [indiscernible] in your model. The way that I might try and talk about it in a consistent way, but we can kind of translate that number is it's not just theoretical. We have anecdotal, obviously, [indiscernible] barrier. But like we have customers actually -- we talked about hugging phase as a customer before Chat GPT. Obviously, it's part of a longer brand. We certainly have it. But I would put it on the theoretical intel market. Like it is very, very early, though but there are organic notes that you can point to like is happening. It's not something. A long time to play out, like relational migration, it will be a long time to play out. But if you [indiscernible] but if you think about like a 5- or 10-year view of MongoDB, pre and post AI, clearly, like 5 or 10 years now, from now, things will be in much better position. Or even better than they would have been had it not [indiscernible].

And the other aspect of that is the database and I have to say like you guys, I saw some of the industry events, I stopped by with you and your technical [indiscernible] showed me defected data base and what it can do, like we factor catalog that should mind so much better results. Is that like a thing that you sell [indiscernible] some quick money there? Or how do you feel about it internally?

We would require a customer who's interested or require a customer who's ready to do this. Occasionally to my point, in regards [indiscernible] your data state as this [indiscernible] becomes AI-ready. So I wouldn't necessarily think it's a quick and easy win. Where we are in the life cycle of [ vector ] surgeons, you went into public preview in June, just create it 3 days ago. And so of course, there will be some amount of customers who already previously working on it, and there will be incremental [indiscernible] in the platform, but we don't expect that to be material. And then as you think about next year and the year after, it will be more for the market channels to acquire incremental workloads that require this capability. I think that is easier and I think it's an important dynamic for people to think about is you aren't deeply established alternative technology. And so it's easier in the sense of like someone is building an application to thinking about that series. "Oh, it's MongoDB, it's in my existing platform." Great, which is different than saying, "Oh, here's tech search. Well, I already used another technology or whatever it is." And so there's like a displacement [indiscernible].

[indiscernible] AI [indiscernible] show up at [indiscernible] on your database, a lot of guys that you're being there. That's interesting to see.

It's quite interesting. And we quoted an early survey in our next earnings call that actually show this is [indiscernible] product, which is very unusual for a product that was still in preview phase. And I think that speaks to the value of a platform that we bring in one place as opposed to [indiscernible].

Yes, 24 seconds. So if you think profitability going forward, is that -- like it feels a little bit like your overrun chance would be a terrible phrase but like revenue upside was the main driver. And it seems like getting [indiscernible] little bit more again? Like how do you feel about that?

Yes, I know we have a little time, but I would just say it's been, obviously, very strong results. We look at sort of versus our IPO, and we said this at the Investor Day, we had kind of 20-plus percent target margins. If I just look at this quarter, and I don't want to overlook into this quarter but 18%. So you think about a 55 points of margin improvement we wanted to make. If based in this quarter, it will be 53, but not even 2% market share. So that relationship doesn't quite seem right. And so I think it makes sense to invest more. We talked about how it's sort of like, obviously, gave in the short term and probably from a long-term standpoint, higher margins that are desirable for kind of progress [indiscernible] summary that.

Thank you. It is good to have you back. Thank you.

Thank you as always.