Q2 2024 Earnings Summary
- Significant increase in new customer additions with higher quality: Confluent added 320 new customers in Q2, the largest sequential increase in two years. The company is also landing a higher percentage of high propensity customers, targeting accounts with high potential for future growth. ,
- Strong adoption and revenue growth from new products like Flink: Over 1,000 prospects and customers have tried out Flink, and the company is starting to see revenue growth from it. Flink is expected to be a positive tailwind for the business as it scales and contributes to the company's growth in the coming quarters.
- Confidence in future growth due to multiple tailwinds: The company anticipates substantial tailwinds from their Data Streaming Platform (DSP), the consumption transformation, and the rise of Gen AI. These factors are expected to contribute materially to growth, giving the company confidence heading into next year about the potential for reacceleration. , ,
- Net Revenue Retention (NRR) decreased to 118%, falling below the company's target range of 120% to 125% for this year, due to continued consumption volatility within large digital native customers. ,
- Digital native customers are focusing on cost efficiencies, leading to slower-than-expected consumption growth and impacting expansion of new use cases, which has continued into July. ,
- The consumption transformation has not yet resulted in accelerated growth, with revenue growth slowing and the benefits of new product introductions like Flink not expected to materially contribute until next year. ,
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Digital Native Customers
Q: Are digital native customers causing growth concerns?
A: Management observed that digital native customers are focusing on cost efficiencies, leading to some pressure on growth in this segment. While this segment has shown good growth over time, recent trends in cost optimization have been factored into the second half outlook. -
NRR Targets and Outlook
Q: Can NRR return to 125% next year?
A: Management remains confident in reaching medium-term NRR targets of 125%. They attribute this to early adoption of Data Streaming Platform products, completion of the consumption transformation, and growth drivers like Gen AI. -
Go-to-Market Transition
Q: What is learned from go-to-market changes?
A: The shift to a consumption model has rebuilt the foundation for growth. Management believes this structure aligns with cloud infrastructure best practices and will drive adoption of new products and workloads. -
Flink Adoption
Q: How is Flink adoption progressing?
A: Flink has seen interest grow from around 600 to over 1,000 prospects and customers. Revenue from Flink is increasing, and management anticipates it becoming a larger portion of the business as more large-scale use cases come online. -
DSP Cross-Selling
Q: Which DSP products show strong uptake?
A: The Connector ecosystem is the largest DSP component due to its earlier start. Governance and Flink are gaining traction, with Flink showing the highest percentage growth from a small base. Management expects substantial increases in attach rates for these components. -
Revenue Guidance
Q: What are expectations for platform and cloud revenue?
A: Second-half guidance accounts for potential lumpiness in the Confluent Platform due to deal timing. The cloud mix is expected to be approximately 53% of total subscription revenue for the full year, consistent with earlier expectations. -
Sales Leadership
Q: Comments on sales leadership changes?
A: There was a departure in sales leadership, but the overall structure remains intact under Erica Schultz, who has been with Confluent for over four years. Management feels comfortable with the current arrangement and continuity. -
Federal Market Growth
Q: Plans for growth in the federal market?
A: Confluent is adding sales positions in the U.S. federal market. While these hires will impact next year's results, management sees this sector as a good contributor and an area for growth. -
International Growth
Q: Any slowdown in international growth?
A: Differences between international and U.S. growth rates are due to the timing of large deals. Recent significant deals were in North America, explaining the relative difference. No specific trends in sales attrition were noted. -
New Customer Quality
Q: Are new customers expected to expand faster?
A: Management has seen an increase in high-propensity customer lands, which they believe will lead to faster expansion over time. The focus is on engaging with the right customers earlier in their development lifecycle.