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

Well, pleased to welcome our next -- I can't really call you a presenting company. I think anyone here remembers the days of the presentations. I used to give a little -- can presentation at these that was a long time ago with the breakout after, put our next fireside chat, MongoDB -- with me to my immediate left, longtime friend, Mike Berry, who's the CFO. And then Ben is the CPO in charge of products. So we'll get into that a little bit as well. I didn't get the time, excuse me.

And thanks for having us, Rob.

Absolutely. So I think the, obvious question, mix of business and how we should think about it as investors. It seems to be a hyper focus around Atlas and what's happening with Atlas, but customers are making a choice. And the EA business has been far better, I think, than you would have thought. So maybe just walk us through some of those different dynamics between EA and Atlas at this point. And what's driving each and how investors should look at the business?

Sure. So again, thank you for having us. And you hit on it. This is all us meeting customers where they are. And what we've seen over the last, call it, 12 to 18 months is just a renewed interest in the self-managed part of the world. Do we invest and focus and obsess completely over Atlas? Absolutely. It's important. In addition, what we've seen is really a pickup in growth in EA. It's always been a good stable business, specifically around regulated industries, government. And I think what you've seen is, I'll say, 2 areas and then one reason why we like it so much is is, hey, the run anywhere strategy is real. And for us to be able to run not only across the 3 public clouds, but also anywhere they want to deploy is super important for them. And then now you bring all the additional regulations, you bring AI into it. Can they even deploy in a cloud given the capacity constraints? Economics matter, so we've seen not only, I'll say, the core workloads where certain industries are going to run on-prem anyway, but now you've seen all the new things that they have to deal with and that's really driven the growth in EA. And then for us, again, we -- is Atlas important? Absolutely, and we obsess over it every day. but we also love EA because they're our largest customers, they will typically -- the larger customers run both self-managed and Atlas. And in that cohort, we talked about this at a conference last week, when you look at the large customers that have self-managed and also Atlas, Atlas growth is actually higher than the total company average. So there's this perception, I think, Rob, which is, hey, it cannibalizes it. Our view is that simply has been the case. And from our perspective, it also drives a boatload of profitability as well. The other thing is, keep in mind, we have disclosed ARR for EA because of the revenue recognition, volatility. Keep in mind that, that's and other is almost always just going to be OEM transactions. And this isn't the large Asia-Pac deal we've done before. but you'll see a little bit of that variability driven by other. If you look over the last 3 quarters, EA ARR has accelerated each quarter and to the extent now that we actually guided double digits, I'm sure we'll talk about this in 2 weeks at our Analyst Day as well, but it's certainly now turning into a double-digit growth driver, and we feel really good about it.

Mike, is there any common characteristics of those going with EA? You mentioned large customers, but if you look internationally, are you seeing a pushback to EA for nationalism or kind of running an on-prem versus being in the cloud and having risk of data. Is there any kind of common denominator you can speak to at this point?

Do you want to take that?

Yes. It's not really a common denominator. I just want to correct one thing that you said about like going back to EA. Customers aren't looking at it that way, although that is a security blanket form, A lot of these laws and regulations and new certifications and everything else, they're still trying to figure these out. Some are like I talked about, but not even cemented into law yet. So customers like the flexibility and portability that we are able to give them that, quite frankly, not a lot of other technologies can give them. And that's the fact that you build an application on MongoDB, you can start out in one place, move it to another place, bring it on prem, if you absolutely need to and self-manage or quite frankly, we have some customers that operate in some countries or some regions that don't have a cloud provider. So to give them a truly portable experience is really valuable to them. So that message of run anywhere and the portability of the application is really resonating.

But investors shouldn't have the view that it's a legacy type of customer or a legacy type of implementation?

Certainly not. And that's what was it, 5 months ago now, 4 months ago now when we announced the GA of search and vector on to the self-managed. We pioneered that in Atlas, and we had enough demand. This is all driven by customer demand. It wasn't a bet that bring this to the self-managed world because they want to be able to have the flexibility of going both places, but also demand for the self-managed environment workloads that just will never go to the cloud for whatever reason, they want the same functionality.

And if I could, Rob, is Atlas important. Absolutely, and we focus on it a lot. I think there's a perception, which is we will only be an AI winner if Atlas accelerates and we struggle with that greatly because that's not what our customers are saying. They're saying we want to deploy, run anywhere. We might want to self manage that. And I think going forward, it's going to be really interesting. Hey, economics matter if they need to absorb the incremental, call it, AI spend, how are they going to deploy that within the envelope they all have. And that's why I think that part of the self-managed becomes a bigger piece of that, and we'll see how that plays out.

So I think this brings about 2 questions, and I'm sure I'm leading you into your Analyst Day, so you're your answers will be somewhat gauged and guarded, Mike, if I know you. But relative to your ability then of EA and our of how that has changed. My sense is this is going to be a more durable growth driver possibly than it was before.

That -- we talked about that on the last earnings call. We haven't guided past this year, but we said we feel like it's -- we now have 2 growth engines, Atlas and self-managed.

Number two, just in terms of the customer economics between the 2 and monetization, the big deltas. Obviously, it's more profitable for you to sell a license to someone and they run it themselves and have that cost. But maybe walk us through the monetization opportunity on each and what the experience has been.

Sure. So -- and I think this goes a little bit to the lifetime value of that. Upfront, yes, you get the profitability over time, that license model will typically be a little bit more profitable, call it, gross margin. But when you go all the way down, keep in mind, too, you still have to spend R&D other dollars. So for us, we are excited about each dollar. The important part for us is that if somebody is doing self-manage and then they're running Atlas, that for us is great because over time, will stuff get deployed in Atlas and migrated cloud? Maybe are they going to deploy in that new workload. Hopefully, they do that in Atlas. So for us, there's also that synergy that comes with it. And keep in mind, and Ben can talk more about this, it's the same product. From an R&D perspective, there's very little difference. So it's not like we have to go spool up a ton of R&D. There's a little bit for the features, but it's also very efficient and it serves both products. in terms of metrics that we should be looking at then how relevant is CRPO to a leading indicator, it obviously spiked last quarter. But I know you gave us an ARR metric and usually, we're going to have to triangulate between but given your hybrid model, is CRPO a relevant metric for us to look at.

I think it's -- or too much noise. I don't think it's too much noise. I think it goes to the go-to-market motion than anything else. In terms of us, as we move upmarket into the enterprise, they like to have building longer commitments. They'll be request that they have. There'll be a request that we have. And what you saw in Q4 of last year was just a much more growth in commitments. It was both across self-managed and Atlas. And when you move up into the enterprise, that will be a part of the go-to-market motion. And keep in mind, people say, "Well, I want to collate CRPO growth with revenue growth." If RPO is, call it, $1.2 billion and current is about half of that $700 million. We guided somewhere around $3 billion. So it's a part of the revenue stream. I would also ask investors don't assume that's all incremental because it's not. You'll have existing customers that will renew a commitment. They'll do a long-term commitment, and then we'll put that in RPO as we need to. Also, keep in mind, our RPO is everything above a year. We don't estimate below a year, so it's going to be a part of it. Is it important? Yes, is it a leading indicator of growth, it's a part of it. It's not the biggest driver.

Okay. Then where do you think the most opportunity is within the core product set now? And when we think about the next incremental dollar of R&D, what are you putting it towards ?

Yes, good question. I think there's a couple of things. I mean one, we announced some new capabilities about 4 weeks ago around MCP server, which is essentially call it, the SDK or the interface that allows agents to talk a singular language to a bunch of different things behind it, right? So I think TerraForm or CDK that's been out there for a really long time. Now we have a better pathway for agents to communicate with our services. We're going to continue investing in there because that ultimately helps drive what we call unaided AI awareness, which means that the human is not potentially in the loop those decisions and those recommendation engines from Ontario labs. So I think that's one, obviously, big area. I think number two, as we're talking about self-managed we pioneered a lot of different services in Atlas first. So because of like how fast we can deploy into that environment that we fully control. We're going to constantly as now Search and Vector are now a part of the self-managed ecosystem. What other things in the Atlas experience that we can continue to make the self-managed experience just as capable? We'll always be looking at that, too. So there's a lot of work going into that. So more information to come later, but that's my focus area right now.

Great. And CJ has spoken a lot about this vision to evolve Mongo into a data platform company. So from your perspective, what does that entail from a core product?

Yes. I think a couple of things. One, the way I think of it and I've been at Mongo for 9 years, the original thesis behind MongoDB and Atlas was we already have MongoDB is a good OLTP database. I think it's the best, but I'm biased, of course. And we hope to have the system of record for all of the customers' revenue-generating applications. we want to provide the best developer experience through that real-time data as much as possible. So if you look at what we've done with Atlas, we're not unlike other -- some competitors we have out there, we want to not make the customer have to duplicate their data just for another use case or just to onboard another service. Everything that we've ever done inside of Atlas is, okay, we've added Search. You just turn that on. It's against that same data set. You want vectors, you just turn it on. We have Atlas Data Federation. We have online archive. We have all of these different robust services that now exist inside of the Atlas platform and why we think it's now intelligent data platform is the add-on of our Voyage acquisition to turn on auto embeddings. All of this is encapsulated into that singular view of what the customer is already operating in. They're not copying their data outside of that boundary. They're not duplicating that data to defer another use case. So as we continue investing into that platform, we're going to continue that same thesis.