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

Great. Thank you to everyone for joining us as part of the Needham Growth Conference. My name is Mike Cikos, I'm the lead analyst here covering MongoDB. Pleased to say that we have with us the management team for the -- which should be a 40-minute fire side. I have some prepared questions on my side that I'll try to get through, but obviously, you guys have a ton more questions, which are way smarter than mine. So please feel free to log those in, and we'll get them to Michael and Serge while we have them. The boiler plate stuff out of the way, Michael and Serge, thank you very much for participating in the conference today. We really do appreciate it.

Thanks for having us. It's great to be here as always.

The easiest question you'll get out the back. Super high level, what does MongoDB do?

Sure. Do you want to go, Serge, or you want me to go?

It's your last rodeo, you go.

So for those who don't know, we're the leading modern general-purpose database platform. So if you think about the database market, it's a very well-established large market, you have $90-plus billion annually being spent. So sort of real actual TAM, not like someday, one day, maybe it will be there. And that's a market that's existed for years. And it was really based off of technology today called relational technology that was important and necessary and critical at the time in the 1970s when it was pioneered, but things have evolved, and so there's a need for a modern alternative. And that's really what we at MongoDB provide. And if you think about the database market, not only is it large, but it's also growing pretty significantly, kind of low double-digit growth. And normally, you think isn't this market has been around for decades, shouldn't a market like that grow more like GDP. Why is the market growing so quickly given that it's so big? And the reality is -- the reason for that is because databases are at the heart of all applications, right? Each application has a database at its core. And you hear phrases like software is eating the world or every company trying to become a software company. And those all point to the fact that the way that companies derive competitive advantage today is principally as a result of their proprietary applications, the technology that they build, right? If it's off-the-shelf technology, like a standard SaaS application, it's available to everyone, that doesn't really provide a lot of benefit. So the way they drive their benefit and drive competitive advantage is by virtue of building software. And that database at the core of that application determines how scalable, how agile, how nimble, how quickly can they innovate, all those things. And so that's part of the reason why the market is so strategic, and we see such significant growth in the market. Lastly, maybe I'll just talk about sort of why was there a need for a new alternative, right? Now, we've had relational alternatives around for decades. Why do companies, why do developers need a modern alternative. And the reason is because the way that relational databases were so successful initially was they were solving for the constraint of the day which was storage, right? In the 1970s, storage was exceptionally expensive. And so if you could store things efficiently, that was very helpful. Unfortunately, that's the way that you store things is you break them out, right? I won't even use any database speak, but I'll just sort of try and give a generalist kind of a view. If you owned a parking garage and you wanted to store as many cars as possible. When the car drove in, you would disassemble the car and you'd put all the steering wheels with the steering wheels and all the fenders with the fenders and you break apart the car and all that and you get way more cars into your parking garage. The challenge is the parking lot attendant when you gave them your ticket, had to reassemble your car and remember, where did I put the steering wheel for this car, and then they look at the sheet and they'd say, "Oh, it was basically in sell BC 478 and have to go look and retrieve that. And that's basically the challenge that a developer has when working with the relational database. So all the data is stored very efficiently, but it's not natural and intuitive to a developer in terms of how to use it because developers use object-oriented programming languages. And so they have to map all this complex data. Whereas today, storage is cheap. And so we, MongoDB, to continue with the parking analogy, just park your car as one whole car. We store it as a document, and then the developer can think of that document as an object. And so it works naturally and seamlessly. And so one of the reasons why we've had success breaking out because we certainly weren't the only one who saw this opportunity. There are many companies that drew a lot of funding and everything else to go and kind of tackle this market. But the reason why we have excelled and kind of broken out is we had a better product that captured kind of the hearts and minds of developers. So there's been developer preference for MongoDB. And then we've married that with solid execution, and that's sort of what's brought us here today to just under $2 billion in revenue. It was still a big, large opportunity and single-digit market share where we are. So why don't I stop there? I can go on and on, but hopefully, that's a helpful framing of it, Mike.

No, no. Thanks for that, Michael. And then again, just in the interest of kind of dusting off numbers for folks, given how long ago the quarterly print felt like at this point, but what were some of the key highlights from the October quarter earnings? Just again, a quick recap.

Yes, sure. Yes, yes. No. No, we're obviously at the end of the cycle, but still that's the most recent quarter as we head into the quiet period and everything else here. So revenue for us was up 22% year-over-year, above the high end of our guidance. Atlas, which is our database services and offering, grew at 26% on a year-over-year basis. It's a little over 2/3 of the revenue at 68% of revenue. Non-Atlas, which is mostly comprised of Enterprise Advanced and some other things, was up 14% on a year-over-year basis. That benefited from more than $15 million of multiyear license versus a year ago. It was a strong income quarter. So non-GAAP operating income was just over 19% and sort of had healthy free cash flow. So we were -- felt like we had a strong quarter ahead of our expectations. The new business environment continued to be healthy for us and executed well, both for Atlas and EA. The non-Atlas business, as I mentioned, significantly exceeded our expectations. Atlas consumption was sort of slightly ahead of our expectations in what we would call sort of a stable environment. We saw a modest seasonal rebound versus Q2 and consumption growth is slower on a year-over-year basis, the same as it was for the first half of the year. So I think those are probably the key highlights right?

And I know we're in the new year as far as calendar. I know everyone is doing their work. There seems to be a growing sense of optimism. It seems like IT budgets might be up slightly versus where they were last year. But interested to the extent you can provide some color, how are -- what is the tone of customer conversations today? Where are they centered? Does there seem to be an uptick in any capacity? Or is it -- again, macro has not significantly changed, but just curious what you're hearing out there?

Yes. So generally, I would describe the conversations as constructive. We continue to see good kind of customer -- our value prop resonating well with customers. I would say I think that we're not necessarily perfectly indicative of some sort of like macro IT budget, right? Like back to my earlier comments, we're still a pretty small share. And so to the extent that there are like tweaks up or down in IT budgets, we're still a net share gainer and have so much opportunity that we can have success, and that's not necessarily an indication that budgets are growing because we're just -- we're such a small player even at almost $2 billion relative to the opportunity set. But certainly, people are judicious with their dollars. People are thinking about how to get the most bang for the buck, if you will. That's obviously generically always true, but probably more true over the last 2 years as people think about it. But we feel that the value prop and where we kind of sit in the technology stack continues to resonate and be an important part. We've talked about the success we've had in new business despite the kind of macro turndown coming up on 2 years ago or 3 years ago. And we've continued to persevere there given the mission criticality of the platform, what we offer, our position as a modern player in the technology stack, the relevance of MongoDB, while it's still early for AI and how we can help and be an important part of people's technology going forward and sort of the future-proofing aspect of it. So in general, we feel good about those conversations, but I wouldn't take anything like -- I'm not sure that I can give you like a crystal ball on like macro IT budgets just because, again, we're a pretty small player amidst the grand scheme of things, and we tend to be at the higher priority stack of opportunities.

Got it. Got it. And I'll throw myself on mute after the questions because I hear the fire trucks in the background. New York City, you got to love it. But a question for you on the new capabilities and functionality as well. Like you guys have obviously announced Sector or streaming for that matter. Is there any significant change for like new logos acquired as far as -- are they -- are you noticing that they're coming in Q4, these newer features? Or no, is that still maybe additive but not why they would initially land with Mongo in the first place? The genesis of the question is, I don't want to overinflate the innovation taking place, but if you could color that, that would be great.

Yes. Maybe I'll take a crack at that. So I think it depends a little bit by product. First thing I would say is that they are all still relatively early on. And when it comes to Vector Search and Stream Processing, they're both playing in markets that are nascent as well. So unlike our core market where it's well established and large, these particular features or products compete in small but fast-growing markets. And so on Vector Search, we've had a very positive feedback in terms of NPS scores and some of the sort of independent surveys out there. It's obviously a part of our sort of AI value proposition, but not the entirety of it. There is some evidence that on the self-serve side, customers are coming to us maybe not because of the Vector Search product, but that they are taking it up -- the new customers are taking it up sooner, which maybe indicates some amount of proclivity towards it. And then on streaming, it's really just exceptionally early stream processing. So it's hard to tell whether that's going to drive new business or just new workloads in existing customers or even just add-on spend to existing workloads, probably some combination of all, but too early to tell.

Got it. Got it. And that overindex on the prior quarter, but again, just wanted to get a better sense if we think through Atlas for a second. Mongo discussed strong new business, solid new workload acquisition. Can you help us think about the cadence of business through the quarter or workload trends, if any, to call out? Like does the October quarter tend to be pretty evenly distributed? Or is there anything to consider?

Yes. I mean I'll come at it 2 different ways. The first way is a little bit of sort of walking and tackling inside the quarter. What we've said before and what's true now is that the second half of the quarter tends to be better than the first half because the seasonal recovery that we usually tend to see in Q3 happens in the back half. It's really usage growth post the summer holidays that sort of we see a bit of a pickup. And then second is, however, that seasonal recovery was more muted than expected. I think Michael mentioned that. And so the -- there was a bit of an improvement, but not as much as in years prior on an intra-quarter basis. And that partially impacts our guidance and sort of how we think about sequential growth of Atlas because consumption in Q3 really gets reflected in revenue in Q4 because consumption is sort of like -- the most real-time measure of the business and revenue comes a little bit after that. And then the other way that I would put it is, and obviously, this is top of mind for the investor community and we get it, is what Michael has said is that consumption growth has been slower than the same period prior year in Q3 as well as Q2 as well as Q1. And generally, we described -- obviously, we had a disappointing Q1 and sort of revised our Atlas consumption expectations then. And I won't belabor the puts and takes, I'm happy to, but maybe as a follow-up. But since then, we sort of generally found the consumption environment to be stable. Nothing on the second derivative to call out one way or the other. But consumption growth does remain below prior year.

Maybe one element to hedge out there, but I know we've spoken about macro, but why do you think that consumption element would be slower. Like what are we attributing to that slower growth from a consumption standpoint?

Yes. So there was 3 pieces to it that we called out in Q1 and all remain true. First is, we've seen a broad-based -- modest, but a broad-based usage deceleration sort of across the base, which is reminiscent of other times when we've sort of seen a bit of a macro pressure in the business. It's smaller compared to the last 2 times we've seen this, one at the beginning of COVID and the other one, whatever that was, fiscal year '23 midway. But it was noticeable and just because of its breadth, it was important for us to call it out. So that's just in the , if you will, macro category. The second piece is, we have seen workloads we acquired in fiscal year '24 grow more slowly than expected, and those workloads are relevant for consumption this year because they are still early enough in their journey that they're growing meaningfully while already -- well, they're not growing from 0 like they tend to in the beginning. So they're in this kind of sweet spot. And so the fact that those are growing more slowly has an impact on consumption. And then finally, and only Q1, we had a disappointing quarter in new business. And if you think about that cohort, the fact that it was smaller, that's just the tax on your consumption growth going forward. So that remains the case, and those elements add up to consumption growth being slower on a year-over-year basis.

And to that, I think it was the second point, when we were talking about the new workloads acquired last year, just growing slower versus what previous cohorts have demonstrated, right? Has there been any improvement on that front? Or no, that still holds from where we are?

No, no, some minor puts and takes, but overall, they're performing sort of along those sort of revised growth curves after Q1.

And then again, let's come back to the fact that October quarter did cite strong new business trends. What is management attributing to that strong new business trend then? Is it the fact that we've -- has there been some sort of change from a go-to-market standpoint that we're executing against? Was it just execution? Were there additional marketing campaigns? Just anything there?

No. I would say differently. Overall, with the exception of Q1, we've been happy with our ability to acquire a new business, and I think Michael sort of mentioned that in his opening remarks. So it wasn't so much that Q3 was the exception or something unusual happening. It was more that the onetime we didn't kind of live up to our standards was the exception. That's it. But it's sort of a combination of all the things that we do day in, day out.

I think maybe one thing, Mike, that's related to that, that sort of [indiscernible] to the investor crew is one of the things that we got and kind of took away or processed in the immediate heels of our December earnings call, was this question of like, are you changing things in go-to-market because we provided an update on things we've said at the beginning of the year, but somehow people didn't hear the update part, and I think maybe married some dots that don't get connected together in that with my departure, pending departure, we elevated Cedric into President of Field Operations and elevated one of his deputies, the guy named Paul Capombassis, to CRO. And I think people mistook that as some sort of much bigger reorg as opposed to sort of the natural evolution. And that combined with the fact that we are providing an update on some of our changes that we made at the beginning of the year in terms of go-to-market, about moving upmarket and things like that. People kind of heard that was new and said like why would you make new changes in the fourth quarter? And is something going wrong? Or are you rejiggering things or everything else? And so we spent time in those first few days at the relevant kind of conferences and one-on-ones trying to help people understand that maybe they were not hearing it correctly or connecting the dots in the wrong way. And so I think we got to most of that, but we do still hear that. As kind of part of the cleanup, I just want to make sure that people understand that we really haven't changed anything. There are no changes in strategies. We were simply providing an update on what we talked about at the beginning of the year and things like that. So hopefully, that helps a little bit, but we haven't gotten that question or at least adjacent questions [indiscernible] to properly address those.

Got it. Got it. On the consumption front, too, just wanted to call out, again, most recent quarter, consumption trends were slightly better than the revised assumptions that you guys had out there. And just to make sure the consumption that you guys did see broad-based across all workloads, was it maybe specific to a geography or a specific fleet of applications. Can you provide some more color on that front as well?

Yes, it was slightly better and really nothing to call out in terms of a particular source. And I know this is a little bit of a cognitive dissonance, but I'm going to try it anyway. It is slightly better than we expected consumption growth. It was slightly better than expected in Q3, but it was nonetheless weaker than a year ago. So both things remain true.