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MongoDB, Inc. (NASDAQ:MDB) Q3 2024 Earnings Call Transcript – Yahoo Finance

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Posted on mongodb google news. Visit mongodb google news

MongoDB, Inc. (NASDAQ:MDB) Q3 2024 Earnings Call Transcript December 5, 2023

MongoDB, Inc. beats earnings expectations. Reported EPS is $0.96, expectations were $0.49.

Operator: Thank you for standing by and welcome to MongoDB’s Q3 Fiscal Year 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there’ll be a question-and-answer session. [Operator Instructions] As a reminder, today’s call is being recorded. I would like to turn the call to your host Mr. Brian Denyeau from ICR. Please go ahead.

Brian Denyeau: Great. Thank you, Valerie. Good afternoon, and thank you for joining us today to review MongoDB’s Third Quarter Fiscal 2024 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 the results of operations and financial conditions that could cause actual results to differ materially from our expectations.

For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks described in our quarterly report on Form 10-Q for the quarter ended July 31, 2023, that was filed with the SEC on September 1, 2023. 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 their most directly comparable GAAP financial measure. With that, I’d like to turn the call over to Dev.

Dev Ittycheria: Thank you, Brian, and thank you to everyone for joining us today. I’m pleased to report that we had another strong quarter as we continue to execute well, despite challenging market conditions. I will start by reviewing our third-quarter results before giving you a broader company update. We generated revenue of $433 million, a 30% year-over-year increase and above the high end of our guidance. Atlas revenue grew 36% Year-over-Year, representing 66% of total revenue. We generated a non-GAAP operating income of $79 million for an 18% non-GAAP operating margin and we had another solid quarter of customer growth and in the quarter with over 46,400 customers. Overall, we delivered a strong Q3. We had a healthy quarter of new business acquisitions, led by continued strength in new workload acquisition within our existing customers.

In addition, our Enterprise Advanced business again exceeded our expectations, demonstrating strong demand for our platform and the appeal of our run-anywhere strategy. Moving on to Atlas consumption trends, the quarter played out in line with our expectations. Michael will discuss consumption trends in more detail later. Finally, retention rates remained strong in Q3, reinforcing the mission criticality of our platform, even in a difficult spending environment. This quarter, we held our most recent global customer advisory board meeting, where customers across various geographies and industries came together to share feedback and insight about the experience using MongoDB. From these discussions, as well as our ongoing C-Suite dialog with our customers a few themes emerged.

First, AI is in nearly every conversation with customers of all sizes. We’re seeing great early feedback from our partnership with AWS’s CodeWhisperer, the AI-powered coding companion that is now trained on MongoDB data to generate code suggestions based on MongoDB’s best practices from over 15 years of history. Microsoft GitHub Copilot is also proficient at generating code suggestions that reflect best practices, enabling developers to build highly-performing applications even faster on MongoDB. And with the recent advances in Gen AI, building AI applications is no longer the sole domain of AI or ML experts, increasingly it’s software developers who are being asked to build powerful AI functionality directly into their applications. We are well-positioned to help them do just that.

We saw exceptional interest in our Vector Search public preview and we announced general availability yesterday. Customers are building a range of AI use cases from semantic search to retrieval augmented generation or RAG where organizations can leverage the use of their private data, to increase the accuracy of LLMs. For example, UKG, a human capital and workflows management technology serves over 80,000 plus customers around the globe chose to use MongoDB Atlas Vector Search for an AI-powered assistant that helps guide their customers employees, people managers, and HR leaders. They chose Atlas Vector Search because of its minimal added architectural complexity, flexibility to handle the rapidly changing data as applications evolve and the scale to handle large workloads.

UKG is not alone. In our recent state of AI survey report by Retool, Atlas Vector Search received by far the highest net promoter score from developers compared to all other vector databases available in the market. Moreover, developers can combine Vector Search with any other query capabilities available on MongoDB, namely analytics, tech search, geospatial, and time series. This provides powerful ways of defining additional filters and vector-based queries that other solutions just cannot provide. For example, you can run complex AI enriched queries such as find pants, shirt, shoes in my size that look like the outfit in this image within the particular price range and have free shipping or find real-estate listings with houses that look like this image that were built in the last five years and/or in that area within seven miles west of Downtown Chicago with top-rated schools.

Second, customers feel more pressure than ever to modernize their data infrastructure, they are aware that their legacy platforms are holding them back from building modern applications designed for an AI future. However, customers also tell us that they lack the skills and the capacity to modernize. They all want to become modern but are daunted by the challenges as they are aware it’s complex — it’s a complex endeavor that involves technology, process, and people. Consequently, customers are increasingly looking to MongoDB, to help them modernize successfully. We launched Relational Migrator early this year to help customers successfully migrate data from the legacy relational databases to MongoDB. Now, we’re looking beyond data migrations to the full lifecycle of application modernization.

At our local London event, we unveiled a Query Converter, which uses genetic AI to analyze existing sequel queries and stored procedures and convert them to work with MongoDB’s query API. Customers already use the tool successfully to convert decades-old procedures to modernize their back-end with minimal need for manual changes. While it’s still early days, we’re continuing to invest in the Query Converter and other AI features with the goal of significantly reducing the effort involved in monetizing legacy applications to run on MongoDB. To be clear, application modernization will take time to ramp, but as one of the largest long-term growth opportunities for our business. Third, our run-anywhere strategy continues to be a real differentiator as customers greatly appreciate the optionality that our platform provides as they manage often conflicting priorities on the way to the cloud.

On one hand, the movement to the cloud continues unabated. Customers in industries and geographies were at first hesitant to move to cloud, such as financial services in Southern Europe are Now moving to the cloud with urgency to become more nimble and to reduce costs. Many of our customers find that the all-in cost of maintaining legacy workloads on-prem is higher than the cost of migrating them to the cloud. On the other hand, our largest enterprise customers tell us they are planning to maintain a meaningful on-prem footprint for the foreseeable future. The reason for keeping workloads on-prem include regulatory requirements, the desire to keep using their existing on-prem infrastructure, or the enormity of the task of migrating all their apps to cloud.

In the meantime, they still want to modern data platform to deploy new and existing applications, the continued outperformance of EA business demonstrates that our customers value our ability to run anywhere and to future-proof their eventual move to the cloud by building on EA. Finally, our customers remain focused on cost management, they’re looking to do more with less by consolidating vendors and reducing the complexity of the data architecture. MongoDB dramatically increases developer productivity and supports a wide variety of use cases, eliminating the need for many point solutions. This combination resonates with customers in this macro-environment. For example, Atlas search now powers the homepage of one of the most recognizable sports media brands in the world.

The customer replaced an incumbent search technology with Atlas search, because they were drawn to the operational ease of running search queries alongside other queries on Atlas as well as the overall cost-savings from consolidating functionality onto a single platform. In short, customers view MongoDB as a true partner, a partner that not only accelerate the pace of innovation, but also drives them to become more efficient. We are deepening investments in our product, partnerships, and customer-facing teams to continue to enable customers to do both. Now I’d like to spend a few minutes reviewing the adoption trends of MongoDB across our customer base. Customers across industries and around the world are running mission-critical applications on Atlas, leveraging the full power of our developer data platform.

These customers include AT&T, Fishbowl by Glassdoor, and Trend Micro. AT&T selected Atlas as a key element of their modernization journey. The location match and application validates 380 million unique customer addresses and handles about 14 million transactions per day. But the various disparate data management solutions led to technical depth and there were duplicative sources of information. The company turned to Atlas as a developer data platform to simplify their data infrastructure, merged their data into a single view, and freed their teams from managing database operations. Now they rely on Atlas change streams to easily track changes with data as well as Atlas’s native search capabilities and built-in geospatial functions to quickly identify location information and accelerate time-to-market for mission-critical products and services.

A software engineer hosting a remote video training session on a multi-cloud database-as-a-service solution.A software engineer hosting a remote video training session on a multi-cloud database-as-a-service solution.

A software engineer hosting a remote video training session on a multi-cloud database-as-a-service solution.

EY, Delivery Hero, and ASAP Log are examples of customers turning to MongoDB to free up their developer’s time for innovation, while achieving significant cost-savings. One of the 2023 MongoDB Innovation Award winners is EY. Ernst & Young LLP manages high volumes of transactional data and its clients and internal teams work under strict timelines to file taxes and meet regulatory deadlines. The cloud-based global VAT reporting tool or GVRT automates and digitizes the preparation of 242 different types of returns across 79 countries. EY migrated from their previous non-relational database solution to Atlas and experienced a significant performance boost, reduced cost by as much as 50% and are able to scale without limitations to handle increased data volumes, transactional loads, and concurrent user requests during peak periods.

Evernorth Health Services, a division of the Cigna Group Manulife and [indiscernible] are turning to MongoDB to modernize applications. Manulife, one of the largest life insurance companies in the world, migrated to Atlas when it became clear that their relational database caused a drag on innovation and increased the time to bring new digital products to market. Manulife selected Atlas, because of the flexible document model speeds up development, scales easily, supports asset transactions, and offers seamless data migration. Using Atlas Device Sync, they successfully launched one critical app’s offline mode to ensure uninterrupted app usage went offline or in low connectivity areas to improve mobile data synchronization. Using Atlas allows Manulife to broaden its digital capabilities and enhance the [indiscernible] of customer interactions cost-effectively.

In summary, I’m pleased with our third-quarter results, our run-anywhere strategy allows customers flexibility over where they deploy and MongoDB is emerging as a platform of choice for their AI-powered applications and customers are using MongoDB to modernize and become more efficient. Before I turn it over to Michael I’m excited to share that Ann Lewnes, the former Chief Marketing Officer and Executive Vice-President of Corporate Strategy and Development at Adobe just joined MongoDB’s Board of Directors, and her leadership roles at Adobe from 2006 to 2023, she was instrumental in driving Adobe’s transition from a perpetual to subscription-based business model, and as experienced marketing to creative professionals, whether they are in a small agency, a medium-sized business, or very large enterprise.

If you replace creative professionals with developers, this strategy is very similar to what MongoDB is doing and Ann did it at the next level of scale. Prior to Adobe, Ann held a variety of leadership positions at Intel during that 20-year tenure at the company, including Vice-President of Sales and Marketing. We’re thrilled for the exceptional perspective Ann will bring to the Board. With that, here’s Michael.

Michael Gordon: Thanks, Dave. 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 2024. First I’ll start with the third-quarter results. Total revenue in the quarter was $433 million, up 30% year-over-year, and above the high end of our guidance. As Dev mentioned, we continue to see a healthy new business environment demonstrating our product market fit and the mission criticality of our platform. Shifting to our product mix, let’s start with Atlas. Atlas grew 36% in the quarter compared to the previous year and represents 66% of total revenue compared to 63% in the third quarter of fiscal 2023 and 63% last quarter.

As a reminder, we recognize Atlas revenue primarily 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. Week-over-week consumption growth in Q3 was in line with our expectations and stronger than Q2. As a reminder, we were expecting a seasonal uptick in consumption in Q3 compared to Q2 based on what we’ve experienced and shared with you last year. We had forecasted that seasonal improvement to be less pronounced this year compared to last year. Given that overall, we’ve seen less consumption variability this year and that is exactly how the quarter played out.

Turning to non-Atlas revenues, EA exceeded our expectations in the quarter as we continue to have success selling incremental workloads into our existing EA customer base. Ongoing EA strength speaks to the appeal and the success of our run-anywhere strategy. The EA revenue outperformance was in part a result of more multiyear deals than we had expected. As a reminder, the term license component for multiyear deals is recognized as upfront revenue at the start of the contract and therefore includes term license revenues from future years. Turning to customer growth. During the third quarter, we grew our customer base by approximately 1,400 customers sequentially, bringing our total customer count to over 46,400, which is up from over 39,100 in the year-ago period.

Of our total customer count over 6,900 are direct sales customers, which compares to over 5,900 in the year-ago period. The growth in our total customer count is being driven primarily by Atlas, which had over 44,900 customers at the end of the quarter compared to over 37,600 customers in the year-ago period. It is important to keep in mind that the growth in our Atlas customer count reflects new customers to MongoDB in addition to existing EA customers adding incremental Atlas workloads. During the quarter, we moved approximately 350 accounts, representing negligible ARR. Out of our self-serve customer count because they’re better classified as subsidiaries of other customers or they are now users of our free tier. Taking that into account our self-serve net additions and overall net additions remain consistent with our historic healthy trends.

In terms of our direct sales, net additions, new sales activity remains healthy. Our reported direct sales net-adds continue to reflect the dynamics we discussed last quarter related to leveraging cloud provider marketplaces to fulfill new direct sales, customer additions and the movement of some small mid-market direct sales accounts to self-serve. Moving onto ARR, we had another quarter with our net ARR expansion rate above 120%, we ended the quarter with 1,972 customers with at least $100,000 in ARR and annualized MRR, which is up from 1,545 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 $335.3 million, representing a gross margin of 77%, which is up from 74% in the year-ago period.

Our year-over-year margin improvement is primarily driven by improved efficiencies that we’re realizing in Atlas. Our income from operations was $78.5 million or an 18% operating margin for the third quarter compared to a 6% margin in the year-ago period. Our strong bottom-line results demonstrate the significant operating leverage in our model and are a clear indication of the strength in our underlying unit economics. The primary reason for our operating income results versus guidance is our revenue outperformance. In addition, our operating income benefited from the timing of new hires. Finally, Q3 benefited from the timing of marketing programs, internal events, and other expenses, which we now expect to incur in Q4. Net income in the third quarter was $79.1 million or $0.96 per share, based on 82.7 million diluted weighted-average shares outstanding.

This compares to a net income of $18.7 million or $0.23 per share on 80.4 million diluted weighted-average shares outstanding in the year-ago period. Turning to the balance sheet and cash flow, we ended the third quarter was $1.9 billion in cash, cash equivalents, short-term investments, and restricted cash. Operating cash flow in the third quarter was $38.4 million, after taking into consideration, approximately $3.5 million in capital expenditures and principal repayments of finance lease liabilities free cash flow was $35 million in the quarter. This compares to a negative free cash flow of $8.4 million in the third quarter of fiscal 2023. I’d now like to turn to our outlook for the fourth-quarter and full-year fiscal year 2024. For the fourth quarter, we expect revenue to be in the range of $429 million to $433 million.

We expect non-GAAP income from operations to be in the range of $35 million to $38 million and non-GAAP net income per share to be in the range of $0.44 to $0.46 based on $83.2 million estimated diluted weighted-average shares outstanding. For the full-year fiscal 2024, we are increasing our outlook across the board. We now expect revenue to be in the range of $1.654 billion to $1.658 billion, non-GAAP income from operations to be in the range of $236.3 million to $239.3 million, and non-GAAP net income per share to be in the range of $2.89 to $2.91 based on $82.5 million estimated diluted weighted-average shares outstanding. Note that the non-GAAP net income per share guidance for the fourth-quarter and full-fiscal year 2024 includes a non-GAAP tax provision of approximately 20%.

I’ll now provide some context on our guidance. First, we expect Q4 Atlas consumption growth to be impacted by the seasonal slowdown around the holidays. Second, as you think about both the sequential and year-over-year revenue growth of Atlas in Q4, keep in mind that in Q4 last year, we had several million dollars more of revenue coming from unused commitments, which we do not expect to occur this quarter. Third; as a result of our strong execution so far this year, we are again raising our non-Atlas revenue expectations for Q4. However, we expect that our non-Atlas revenues will decline sequentially, Q4 versus Q3. This is different from our normal pattern as we usually see a seasonal uptick in Q4 due to greater renewal activity. The reason for the sequential decline this year is because of the strength we’ve seen in Q3, including the benefit of multiyear EA deals.

Finally, thanks to the strong performance in Q3, and increased revenue outlook again, we’re again increasing our assumption for operating margins in fiscal 2024 to 14% at the midpoint of our guidance, an improvement of more than 900 basis points compared to fiscal 2023. Our significant margin improvement this year is primarily driven by our revenue outperformance and the fact that we didn’t increase our pace of investment as the revenue outlook improved until relatively late in the year. As a result, we achieved greater margin expansion this year than we think is desirable in the short term given the long-term market opportunity ahead of us. To summarize, MongoDB delivered excellent third-quarter results in a difficult environment, we’re pleased with our ability to win new business and are demonstrating the operating leverage inherent in our model, while we will continue to monitor the macro-environment we remain incredibly excited about the opportunity ahead and we’ll continue to invest responsibly to maximize our long-term value.

With that, we’d like to open it up to questions, operator.

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Article originally posted on mongodb google news. Visit mongodb google news

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