MongoDB - Q4 2024

Transcript

Operator (participant)

Thank you for standing by, and welcome to MongoDB's fiscal Q4. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question at that time, please press star one one on your telephone. Please, today's meeting is being recorded. I will now turn the conference over to your host, Mr. Brian Collier, ICR. Go ahead.

Speaker 12

Thanks, Valerie. Good afternoon, and thank you for joining us today to review MongoDB's Q4, fiscal 2024 financial results, which we announced in our press release issued after the closing 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, our expectations for the macroeconomic environment in fiscal 2025 and the impact of AI, 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 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 October 31, 2023, filed with the SEC on December 7, 2023. Any forward-looking statements made in this call reflect our views only as of today, and we undertake no obligation to update them except as required by law. Additionally, we'll 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 the most directly comparable GAAP financial measures. With that, I'd like to turn the call over to Dev. Thanks, Brian, and thank you to everyone for joining us today.

Dev Ittycheria (President and CEO)

I'm pleased to report that we had another strong quarter that capped off an impressive year as we continue to execute well to capture our large market opportunity. I will start by reviewing our Q4 and full year results before giving you a broader company update. Starting with the Q4, we generated revenue of $458 million, a 27% year-over-year increase and above the high end of our guidance. Atlas revenue grew 34% year-over-year, representing 68% of revenue. We generated non-GAAP operating income of $69.2 million, for a 15% non-GAAP operating margin, and we ended the quarter with over 47,800 customers. Overall, we are pleased with our performance in the Q4. We had a healthy quarter of new business, led by continued strength in new workload acquisition within our existing Atlas 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, and we saw a strong consumption, stronger consumption than in Q4 last year. Michael will discuss consumption trends in more detail. Finally, retention rates remained strong in Q4, reinforcing the quality of our product and the mission criticality of our platform. Stepping back and looking at fiscal 2024 as a whole, I am proud of what we accomplished. We achieved revenue growth of 31% and a non-GAAP operating margin of 16%, well above our initial expectations. Atlas grew 37% year-over-year, and we added over 7,000 customers, ranging from AI startups to Fortune 500 companies.

We had a record year of fast-paced, innovative product releases such as Vector Search, Queryable Encryption, and the preview of Atlas Stream Processing, reinforcing why so many customers and developers choose MongoDB's developer data platform. Finally, we continued to innovate on our go-to-market motion to drive workload acquisition. As we look into fiscal 25, let me share with you what I see in the market. First, I'm excited about our opportunity to win new business. In today's digital world, customers express their business strategy through software. The software equals strategy that one of the most important investments a company can make is in the productivity of its software developers. Consequently, customers are gravitating towards MongoDB as their next-generation developer data platform standard. Second, I see stable consumption growth going to next year.

Atlas consumption trends have been steady for several quarters now, and we experienced less consumption variability in fiscal 2024 compared to fiscal 2023. Ultimately, the main driver of Atlas consumption is the growth in the underlying application usage, and we see stable growth, stable usage growth across our portfolio of workloads. Third, while I strongly believe that AI will be a significant driver of long-term growth for MongoDB, we are in the early days of AI, akin to the dial-up phase of the internet era. To put things in context, it's important to understand that there are three layers to the AI stack. The first layer is the underlying compute and LLMs. The second layer is the fine-tuning of models and building of AI applications. And the third layer is deploying and running AI applications that end users interact with.

MongoDB's strategy is to operate at the second and third layers to enable customers to build AI applications by using their own proprietary data together with any LLM, closed or open-source, on any computing infrastructure. Today, the vast majority of AI spend is happening in the first layer, that is, investments in compute to train and run LLMs. Neither are areas in which we compete. Our enterprise customers today are still largely in the experimentation and prototyping stages of building their initial AI applications, first focused on driving efficiencies by automating existing workflows. We expect that it will take time for enterprises to deploy production workloads at scale. However, as organizations look to realize the full benefit of these AI investments, they will turn to companies like MongoDB, offering differentiated capabilities in the upper layers of the AI stack.

Similar to what happened in the internet era, when value accrued over time to companies offering services and applications leveraging the built-out internet infrastructure. Platforms like MongoDB will benefit as customers build AI applications to drive meaningful operating efficiencies, create compelling customer experiences, and pursue new growth opportunities. We already see our platform resonating with innovative AI startups building exciting applications for use cases such as real-time patient diagnostics for personalized medicine, cyber threat data analysis for risk mitigation, predictive maintenance for maritime fleets, and auto-generated animations for personalized marketing campaigns. Finally, our competitive position is getting stronger. Our win rates remain very high across all competitors. We rarely compete with legacy database providers as enterprises understand that they need to move away from inefficient and brittle legacy technology.

We also rarely run into niche database players since customers are overwhelmed by the proliferation of point solutions that are hard to manage and add limited value. Our main competition remains the cloud players. They offer a wide array of database options, relational and non-relational, and benefit from their size and reach. We compete well against these players due to the flexibility and scalability of our document architecture, the fact that our open platform can run anywhere and avoids lock-in, and MongoDB's popularity among developers all around the world. Finally, when you look at our newer products, we see increased success competing against the established players in those markets.

We find that the same principle applies as in the core database market. Customers don't want to manage a myriad of point solutions and prefer consolidating their spend with strategic vendors, especially in the current cost-conscious environment.

In summary, we expect the environment in fiscal 2025 to be largely similar to the environment we experienced in fiscal 2024. With that backdrop, let me tell you what our priorities are going to next year. First, we will continue pressing our product advantage in the core database, since we believe customers will place an even greater premium on performance and scalability in the AI-enabled world. In addition, we'll continue maturing our newer products, including additional features of vector search, GA of Atlas Stream Processing, and enhancements to other offerings. Second, we will remain singularly focused on new workload acquisition as the key long-term driver of business. We'll continue fine-tuning incentives to ensure that our entire go-to-market organization is focused on identifying and sourcing new workload opportunities.

In addition, we will leverage our expertise and learnings from our self-serve business to use product-led growth techniques to increase the adoption of Atlas by other development teams within our existing large enterprise accounts. Third, we are focused on growing sales capacity. As we told you in the past, we are slow to grow capacity in fiscal 2024, especially in the first half, due to macro uncertainty. Given that the market is more stable now and that we remain under-penetrated compared to our opportunity, we'll increase the pace of go-to-market investments in fiscal 2025. Fourth, we will continue investing to become a standard in more of our customer base. We intend to double the size of our strategic account program and dramatically expand our account-based marketing efforts in our largest accounts.

Finally, we remain focused on locking the relational migration opportunity. To remind everyone, there are three elements to migrating an application: transforming the schema, moving the data, and rewriting the application code. Our current Relational Migrator offering is designed to automate large parts of the first two elements, but rewriting application code is the most manually intensive element. Gen AI holds tremendous promise to meaningfully reduce the cost and time of rewriting application code. We will continue building AI capabilities into Relational Migrator, but our view is that the end solution will be a mix of products and services. This year, we are investing in a number of pilots, leveraging AI for relational migrations, paired with services to substantially simplify and scale the process.

Now, I'd like to spend a few minutes reviewing the adoption trends of MongoDB across our customer base. Customers across industries around the world are running mission-critical projects on MongoDB Atlas, leveraging the full power of our developer data platform, including ZF, Forbes, and Swiss Federal Railways. ZF, a global technology company supplying systems for passenger cars, commercial vehicles, and industrial technology, needed a central database solution with broad functionality to support more than 300,000 commercial vehicles connected to ZF infrastructure. ZF originally began using MongoDB on-premise in 2014 and migrated to MongoDB Atlas to modernize the architecture behind its new fleet orchestration solution.

The team now uses time series and online archive to reduce the overall data storage size, as well as MongoDB Atlas Search to manage indexes and Atlas Charts to display billing information. MongoDB's developer data platform enables ZF to release new features faster as innovative technologies like drones and autonomous vehicles continue to come to market.

Indeed, BigPay and Anywhere Real Estate are examples of customers turning to MongoDB to free up the developers' time for innovation while achieving significant cost savings. Anywhere Real Estate, a global leader in residential real estate services, whose brand portfolio includes Better Homes and Gardens, Century 21, Coldwell Banker, Corcoran, ERA, Sotheby's International Realty, is leveraging MongoDB Atlas and Atlas Search to greatly enhance its search capabilities. Their previous solution was too costly and operationally burdensome to maintain. Now, with Atlas Search, they can ingest data from hundreds of MLS sources, aggregate the data, and provide customers with a search solution that efficiently delivers accurate and up-to-date information, saving time and lowering costs. Anywhere is also exploring the use of Atlas Vector Search to provide semantic search and Gen AI features to millions of consumers.

Samsung Electronics, ArcelorMittal, and Citizens Bank are turning to MongoDB to modernize applications. Samsung Electronics' Digital Appliances division transitioned from their previous MySQL database to MongoDB Atlas to manage appliance data more effectively. By leveraging MongoDB's document model, Samsung's Smart Home service can collect real-time data from the team's AI-powered home appliances… and use it for a variety of data-driven initiatives, such as training AI services. Their migration to MongoDB Atlas improved response times by more than 50%, and disk read latency was reduced from three seconds to 18 milliseconds, significantly improving availability and developer productivity. Let me wrap up by saying that I remain highly confident about our ability to execute on our long-term growth opportunity.

We are pursuing one of the largest and fastest-growing markets in all of software, with significant expansion opportunities in both new and existing customer accounts. While it's early days, we expect that AI will not only support the overall growth of the market, but also compel customers to revisit both their legacy workloads and build more ambitious applications. This will allow us to win more new and existing workloads and to ultimately continue to establish MongoDB as a standard enterprise accounts. Before I turn it over to Michael, I would like to personally invite all of you to attend the investor session at MongoDB.local NYC, to be held at the Javits Center on May 2nd. Please email [email protected] if you're interested in attending. With that, here's Michael.

Michael Gordon (COO and CFO)

Thanks, Dev. As mentioned, we delivered a strong performance in the Q4, both financially and operationally. I'll begin with a detailed review of our Q4 results, and then finish with our outlook for the Q1 and full fiscal year 2025. First, I'll start with our Q4 results. Total revenue in the quarter was $458 million, up 27% year-over-year, and above the high end of our guidance. As Dev mentioned, we had another quarter of healthy new business acquisition, demonstrating our product-market fit and the mission-criticality of our platform. Shifting to our product mix, let's start with Atlas. Atlas grew 34% in the quarter compared to the previous year, and now represents 68% of total revenue, compared to 65% in the Q4 of fiscal 2023, and 66% last quarter.

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. As a reminder, in Q4 of fiscal 2023, we had a higher than normal amount of revenue from unused commitments, making this a tough year-over-year comparison. Excluding the impact of unused commitments, Atlas year-over-year growth in Q4 was in line with the growth that we observed in Q3. Let me provide some additional context on Atlas consumption in the quarter. As we shared in our guidance last quarter, we were expecting consumption to be impacted by the seasonal slowdown in Q4 around the holidays. Week-over-week consumption growth in Q4 was stronger than in Q4 of last year and in line with our expectations.

We've seen less consumption variability this year, and so, as in Q3, we forecasted less of a seasonal impact than in prior years, and that's exactly what we saw. Turning to non-Atlas revenue, EA exceeded our expectations in the quarter, and we continue to have success selling incremental workloads into our existing EA customer base. Ongoing EA strength speaks to the appeal and 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 revenue related to future years. Turning to customer growth.

During the Q4, we grew our customer base by approximately 1,400 customers sequentially, bringing our total customer count to over 47,800, which is up from over 40,800 in the year ago period. Of our total customer count, over 7,000 are direct sales customers, which compares to over 6,400 in the year ago period. The growth in our total customer count is being driven primarily by Atlas, which had over 46,300 customers at the end of the quarter, compared to over 39,300 in the year ago period. It's important to keep in mind that the growth of our Atlas customer count reflects new customers to MongoDB, in addition to existing EA customers, adding incremental Atlas workloads. Moving on to ARR.

We had another quarter with our net ARR expansion rate above 120%. We ended the quarter with 2,052 customers, with at least $100,000 in ARR and annualized MRR, which is up from 1,651 in the year ago period. We also finished the year with 259 customers spending $1 million or more annualized on our platform, compared to over 213 a year ago. Moving down the income statement, I'll be discussing our results on a non-GAAP basis, unless otherwise noted. Gross profit in the Q4 was $353.6 million, representing a gross margin of 77%, which is down from 78% in the year ago period.

As we said at the time, our gross margin in the year ago period reflected a one-time benefit of roughly 2.5 percentage points related to one of our cloud partner contracts. Our income from operations was $69.2 million, or a 15% operating margin for the Q4, compared to a 10% 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. Net income in the Q4 was $71.1 million, or $0.86 per share, based on 82.9 million diluted weighted average shares outstanding.

This compares to net income of $46.4 million or $0.57 per share on 80.8 million diluted weighted average shares outstanding in the year ago period. Turning to the balance sheet and cash flow. We ended the Q4 with $2 billion in cash, cash equivalents, short-term investments, and restricted cash. Operating cash flow in the Q4 was $54.6 million and $121.5 million for the full fiscal year 2024. After taking into consideration approximately $4.1 million in capital expenditures and principal repayments of finance lease liabilities, free cash flow was $50.5 million in the quarter.

This compares to free cash flow of $23.8 million in the Q4 of fiscal 2023. For the full fiscal year 2024, free cash flow was $109.9 million, compared to -$24.7 million in fiscal 2023. I'd now like to turn to our outlook for the Q1 and full fiscal year 2025. For the Q1, we expect revenue to be in the range of $436 million-$440 million. We expect non-GAAP income from operations to be in the range of $22 million-$25 million, and non-GAAP net income per share to be in the range of $0.34-$0.39, based on 83.8 million estimated diluted weighted average shares outstanding.

For the full fiscal year 2025, we expect revenue to be in the range of $1.9 billion-$1.93 billion. Non-GAAP income from operations to be in the range of $186 million-$201 million, and non-GAAP net income per share to be in the range of $2.27-$2.49, based on 85.1 million estimated diluted weighted average shares outstanding. Note that the non-GAAP net income per share guidance for the Q1 and full fiscal year 2025 includes a non-GAAP tax provision of approximately 20%. I'll now provide some more context on our guidance, starting with the full year fiscal 2025, where we're facing difficult compares in two ways.

First, we expect to recognize close to zero revenue from unused Atlas commitments in fiscal 2025, compared to over $40 million in fiscal 2024. As you may recall, in fiscal 2024, we changed our sales incentive structure to reduce the importance of upfront commitments, and so we saw far fewer upfront commitments. Therefore, as those fiscal 2024 deals come up for renewal in fiscal 2025, we expect to see limited revenue related to unused commitments. Second, in fiscal 2024, we recognized approximately $40 million more in multi-year license revenue than we did in fiscal 2023. As you know, our fiscal year 2024 non-Atlas revenue benefited from a higher than usual amount of license revenue related to multi-year contracts, including our extended partnership with Alibaba.

Clearly, we are pleased with the fiscal 2024 performance, but it was unusual in terms of the magnitude of multi-year deals, and we don't expect similar performance in fiscal 2025. As a result, we expect non-Atlas revenues to be modestly down in fiscal 2025. Next, we expect Atlas consumption growth to be in line with the consumption growth we've experienced in fiscal 2024. Finally, I want to provide some context to better understand our operating margin guidance. The $80+ million of fiscal 2024 revenue that won't repeat in fiscal 2025 was very high margin, making for an exceptionally tough operating margin compare. In addition, as we mentioned in the past, in fiscal 2024, we began increasing our pace of hiring relatively late in the year, so the full cost from those investments will impact our fiscal 2025 operating margin.

We're expecting headcount growth in the mid-teens versus 9% growth in fiscal 2024, and as Dev mentioned, we are prioritizing growth in sales productive capacity. Consequently, we expect to see a year-over-year operating margin decline, while still delivering 500 basis points of margin expansion on a two-year basis. We believe this is the most appropriate way to understand our continued margin progression. Moving on to our Q1 guidance, a few things to keep in mind. First, we expect Atlas revenue to be flat to slightly down sequentially. Q1 has 2 fewer days than Q4 this year, which represents a revenue headwind. Also, the slower Atlas consumption growth during the holidays will have a bigger impact on Q1 revenue than it did in Q4, thereby negatively impacting sequential revenue growth.

Finally, the sequential impact from the expected decline in unused Atlas commitments will be most pronounced in Q1, given that we made the changes in Q1 of last year. Second, we expect to see a meaningful sequential decline in EA revenue. As discussed in past years, Q4 is our seasonally highest quarter in terms of our EA renewal base, which is an excellent indicator of our ability to win new EA business. In Q1, the EA renewal base is sequentially much lower. Finally, we expect operating income to decline sequentially due to lower revenue as well as our increased pace of hiring. To summarize, MongoDB delivered strong Q4 results.

We're pleased with our ability to win new business and see stable consumption trends in Atlas. 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?

Operator (participant)

Thank you, ladies and gentlemen, if you'd like to ask a question, please press star one one on your telephone. Again, to ask a question, please press star one one. One moment for our first question. Our first question comes from the line of Sanjit Singh of Morgan Stanley, your line is open.

Sanjit Singh (Executive Director)

Thank you for taking the question. Michael, I wanted to, you know, walk through the guidance with you a little bit. You know, this time last year, coming out of, you know, Q4 of 2023, I think it was a pretty different environment, a much more cautious environment. I think usage growth was particularly impacted in Atlas last year. This year, coming into fiscal year 2025, things feel a little bit healthier or at least stable in sort of on how you guys are framing it. And yet the guidance, the initial guidance for growth looks a lot like the initial guidance growth from last year.

Just trying to understand, and I know you talked about some of the one-time impacts from last year, but just in terms of a better spending environment versus an initial guide that looks also pretty similar to last year, could you sort of frame out like the conservatism that you have embedded in guidance?

Michael Gordon (COO and CFO)

Yeah, so a couple things. Thanks for the question. Yeah, I think the key thing is once you adjust for those one-time items that we called out, we see a stable environment. That's what we described in Q4 compared to Q3. So we feel good about that. I think just to underscore, there's the $80 million in revenue that won't repeat both from the unused commitments as well as from the multi-year deals. And when you adjust from those, you know, we feel good about the dynamic. To your question, which is sort of embedded in that around, you know, sort of I'll call it, you know, guidance approach or approach to guidance, you know, we haven't changed our view as it relates to guidance.

We have seen more stable consumption, that obviously gives us higher confidence, in part, given the less variability that we've seen, over the course of fiscal 2024. I think we also have a better understanding of the underlying seasonality of the business. We had updated at the end of last year, in our call, in our Q3 call, around the success that we're having on EA, and we had updated those EA new business assumptions, and so that, our guidance reflects kind of continued strength there. So I think that's how we approach it, but there are no fundamental changes, but hopefully, we've given you a fair amount of the piece parts, so people can, help do the math.

Sanjit Singh (Executive Director)

Yeah, I really appreciate that. Thank you for breaking out the that $80 million between unused commitments and the multiyear term license deals. On the unused commitment side of the house, that $40 million, give me just a sense of, like, how that flowed through to the balance of the year. Obviously, it doesn't look like it all came in Q4, but the prior year in Q4, you also mentioned a several million dollar impact to Atlas revenue that quarter. Was that impact, you know, worse or better this year when we think about the unused commitment contribution to this quarter's Atlas results?

Michael Gordon (COO and CFO)

Yeah. So I think the key thing is the $40 million will happen over the course of the year. It obviously tracks to the you know actual contracts. It affects a relatively you know small number of customers and a small percentage of the commitments. It's a dynamic that goes away over time as we've discussed. We particularly called out that on a sequential basis, it'll be most obvious and most pronounced in Q1 because you know we're basically hitting the first wave of those renewals where we don't have commits. And so especially as people are trying to do the sequential math, we just wanted to call that out and make sure people sort of understood that dynamic.

Sanjit Singh (Executive Director)

Understood. Congrats on the Q4.

Michael Gordon (COO and CFO)

Thanks.

Operator (participant)

Thank you. One moment, please. One moment. On the line of Raimo Lenschow of Barclays. Your line is open.

Raimo Lenschow (Managing Director)

Thank you. Congrats on a nice Q4. Question also a little bit on guidance, Mike. Like, the last two quarters before Q4, we talked about EA seeing a little bit of a tailwind from customers, kind of maybe modernizing on-premise rather than going to Atlas to kind of still modernize, but then maybe not spending all the money to go to the cloud. Is that trend still valid? And if you think about the multi-year commitments, obviously you had this, you know, what, $10 million-$15 million for the Alibaba deal, but then the other stuff is like customers that are just doing this work. Do you think that will change and people go back to, like, shorter commitments, or is it just more that you're kind of thinking about the renewal pool? Thank you.

Michael Gordon (COO and CFO)

Yeah. So a few different things embedded in there. On the multi-year, we've. It's always been a dynamic, and as we've seen, you know, deals or variability, we've tried to call that out, and that's why we sort of call out, given under the ASC 606, that increased variability and reduced comparability that comes from EA. Obviously, Atlas has grown as a percentage of the business, but, you know, that continues to be the dynamic for the EA portion. I expect that we will continue to see multi-year deals, but we just, in fiscal 2024, it was just so many more than we thought, and to your point, not just EA, but broadly non-Atlas.

And it's just, it's, you know, not something that we'll repeat in fiscal 25, and so that's why we wanted to call it out and quantified it. On the first part of your question on modernization, the way I would think about it is, you know, customers all have their own IT strategies, including deployment, including their cloud postures and things like that. That's, you know, for them to decide. We wanna make MongoDB easy for them to consume. Our Run Anywhere strategy has proven, you know, to be successful, and we've seen that in the EA outperformance.

you know, I think the other thing I'd add is we have increasingly seen people appreciate, even if they're operating in a business or maybe in a regulated environment where they can't fully move to the cloud, where they do wanna start to modernize applications and modernize infrastructure. And MongoDB is seen, and Enterprise Advanced is seen now as an on-ramp to the cloud. Even if you can't fully modernize and put yourself into a public cloud setting, EA can help that, because eventually, given the Run Anywhere strategy, it'll make it easier for your ultimate move to the cloud if that's what you wind up doing.

Raimo Lenschow (Managing Director)

Okay, perfect. Thank you.

Operator (participant)

Thank you. Again, ladies and gentlemen, for any question, please press star one on your phone. We please ask that you do limit yourself to one question and a follow-up. One moment for our next question. Our next question comes from the line of Kash Rangan of Goldman Sachs. Your line is open.

Kash Rangan (Managing Director)

Hey, thank you very much. Congrats on the results. One quick one for Dev and one hopefully quick one to Michael as well. Dev, you talked about generative AI applications. You've described the three-layer architecture. When do you think it hits the sweet spot of how MongoDB is positioned from a timing standpoint? When do these generative AI applications start to really drive underlying need for the kind of databases that you're best suited for? One for Michael. In your assumptions, when I take away the $40 million of the upfront, I mean, that's like a couple of percentage points of growth. I'm just trying to understand what kind of consumption trends you are using to build guidance. Was it average of fiscal 2024 consumption trends, or weighted more to a second half, or exiting Q4?

Any color there would be tremendously useful. And I also want to ensure the sales force is still selling EA and can get comp for EA, because it does not look like you're giving much, much weight for EA in your forecast. That's it for me. Thank you.

Dev Ittycheria (President and CEO)

Thanks, Kash. I'll take the first question. In regards to when we see enterprises deploying AI apps in production, I think it's a combination of customers getting comfortable with the technology, and also these technologies maturing, but from both a performance and from a cost point of view. You know, if you played with ChatGPT or any of the other chatbots out there, you know, or large language models, you'll know that the performance of these applications, you get a response time in the 1,2,3 seconds, depending on the type of question you're asking. And, you know, so naturally, a chatbot is a very simple but easy-to-understand use case.

But to embed that technology into a sophisticated application, making real-time decisions based on real-time data, the performance and to some degree, the cost of these architectures are still not there. Also, customers are still in the learning phase. They're experimenting, they're prototyping, but I would say you're not seeing a lot of customers really deploy AI applications at scale. So I think it's gonna take them. I would say this year is a year where they're gonna do, you know, probably roll out a few applications, learn, and then, you know, as they get more experienced, become more comfortable in rolling out more and more applications as both these technologies mature and the costs come down.

We feel very good about our positioning because from an architecture point of view, the Document Model, the flexible schema, the ability to handle real-time data, performance at scale, the unified platform, the ability to handle data, metadata, and vector data with the same query language, same semantics, etc, is something that makes us very, very attractive. The other thing that we're finding is, unlike a typical sale, where someone's deciding to either build a new workload or modernize a workload, the AI decision is more of a centralized decision, more than ever. So it allows us to actually go higher in the organization.

So we're actually engaging with customers at much more senior levels because, obviously, this is coming down as a top-down initiative, and so this allows us to position us as a very modern platform designed for these new modern use cases and workloads. So, we feel good about our positioning, but as I said, this year, I think, is gonna be, you know, continued experimentation and roll out of some individual applications.

Michael Gordon (COO and CFO)

On the consumption questions, Kash, thanks for that. Overall, if you look at the guidance and the piece parts that we've tried to share with you, when you take into account the $80 million of impact from the unused commitments and the multiyear outperformance, you'll see at the top-line level, around 500 basis points of a headwind. And then we also walked you through our expectations that the non-Atlas will be modestly down, given the $40 million of that part that isn't recurring. So when you kind of piece all those together, you'll wind up, you know, probably coming to a conclusion that Atlas looks, you know, consistent from a consumption growth standpoint, and that's in line with the stable trends we've seen over the course of fiscal 2024.

So we're using those fiscal 2024 numbers. Obviously, there's some seasonal adjustments that we have factored in there, but that, that's really what we're seeing there. And then to the last part of your question around EA, we are, you know, we do still sell EA. We don't tend to sell EA into new accounts. It tends to be into an existing account, expanding their MongoDB footprint. Sellers do get compensated on EA. You know, in part, it goes back to the comment from the earlier, you know, question that our sales rep really can't dictate the IT deployment environment at a customer. And so, yes, they get paid on that.

And to your comment about the sort of, you know, EA, you know, results or expectations, that's really just as a result of the difficult compare, you know, in part, given that, that multiyear dynamic.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Brent Bracelin of Piper Sandler. Your line is open.

Brent Bracelin (Managing Director)

Good afternoon. Thank you. Michael, we're gonna stick with the guidance theme here. If I look at last year, you guided to, I think, 16% growth. You ended up doing 31 for the full year. Even if I take out the $80 million tailwind you talked about, that's still 25% growth. You're guiding to 14% growth this year, again, 5%, headwind, so closer to 19% organically. Are you more confident kind of going into this year than last year, just as you think about the trends? Is the 14 comparable to the 16 initial guide last year, or is it really more like 19 adjusted basis comparing to 16? I know it's a little confusing, but getting a lot of questions on it. Thanks.

Michael Gordon (COO and CFO)

Yeah, no, it's fine. I go back to what I said in response, I think it was to Sanjit's question. You know, there's been no fundamental change or approach in terms of how we're, you know, looking and determining, you know, our guidance. I do think to the confidence point, I think that that is correct. We do have more confidence. We have more data. You know, if you think back a year ago, as one of the questions indicated, there was much more macro uncertainty. I think over the course of fiscal 2024, we saw narrower variability, we saw more consistent results.

That does give us increased confidence. I think we also have another year under our belt in terms of understanding the seasonality trends of Atlas. I know Atlas is a big business, but it's still a relatively young one, especially when you think about getting quarterly data points, and so I think we have more confidence and better handle on that. And then lastly, while there is a difficult compare on EA, I think, you know, we talked about this in the second half of last year, where we were, you know, at some point, you can only continue to be surprised by EA so much.

And so as we looked at our, I think it was in our Q3 call, we talked about how we were, you know, upping our views on what EA could do. And so all that's sort of baked into the guide.

Brent Bracelin (Managing Director)

Helpful color there. And then just, Dev, as you think about the million-dollar question, when do you think these AI tailwinds, the interest in vector, starts to really impact your business? It sounded like you think another, we'll see another year of more experimentation before we see big production moves. Is that the right take? Just walk us through your current thinking on when AI really starts to show up in your business. Thanks.

Dev Ittycheria (President and CEO)

Yeah, I think it's gonna show up in a business when people are deploying AI apps at scale, right? So I think that's gonna be at least another year. But that being said, we do see some really interesting startups who are building on top of MongoDB, so it gives us confidence, you know, about our platform fit for these sophisticated workloads. But, you know, given, you know, all the noise around AI, you have to remember, you know, we're still in the very early days. The performance of some of these systems is, I would classify as okay, not great. The cost of inference is quite expensive, so people have to be quite careful about the types of applications they deploy. There's some debate about, you know, open versus closed sourced LLMs.

Do they use case-specific LLMs or more general-purpose LLMs? So there's a lot of learnings going on, and obviously, you know, there was an announcement today that yet another company had delivered better performance than GPT-4. So people are, you know, there's a lot going on in this space, so for people to really get comfortable in picking a stack and deploying, you know, workloads en masse, it's gonna take a bit of time. You know, there are obviously, you know, some outliers who are obviously being far more aggressive, but that's essentially what we see across our customer base. But the good news is that we feel like we're well positioned. We feel that people really resonate with a unified platform.

You know, one way to handle data, metadata, and vector data that we are open and composable, that we integrate to not only all the different LLMs, we integrate to different embedding models, and we also essentially also integrate with some of the emerging application frameworks that developers want to use. So, we think we're well positioned, and you'll see us continue to expand and broaden our reach in this category, but I do think it's gonna take a little bit of time.

Brent Bracelin (Managing Director)

Makes sense. Thank you.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Karl Keirstead of UBS. Your line is open.

Karl Keirstead (Software Equity Research)

Okay, great. Maybe one for Dev and one for Mike. Dev, just because my first question follows on that, I'll go to you first. There are certainly some voices in the industry that would argue that even in advance of AI applications being deployed at scale, which you just said might take a year, enterprises might look to spend more to modernize their existing data stack and on data readiness in advance of those AI apps going into production. Are you seeing any of that type of behavior that could precede the in production deployment timeframe?

Dev Ittycheria (President and CEO)

Yeah, I touched a little bit about relational migrations. I mean, that's one way where a lot of people feel like they have a lot of data trapped in these legacy platforms. As we've shared, and, you know, we've always had customers migrate from legacy SQL apps to MongoDB, but the hardest part was basically rewriting the application. Generative AI essentially lowers the cost to do so. We are running a bunch of pilots with customers. Customers are very aligned. We have access to C-level decision makers, and, you know, and we're learning a lot. Obviously, we're learning about the effectiveness of some of these AI technologies. We're learning about how you have to handle, you know, old languages, old libraries, old packages, the different versions, and, you know...

And so the variability and all that, you know, you know, makes it clear that this will require a mix of product and services. Product alone today will not solve the problem. So we do think this is, you know, a big opportunity, but we're in the early days, and, you know, as I said in the past, even, you know, when I talked to investors about this pre-AI, it was. There was no big, red, easy button to press to kind of migrate a SQL app to MongoDB. And while Gen AI makes that easier, it's still gonna take a little bit of time, but it's definitely exciting, and there's a lot of customers leaning in. And so, you know, we're excited about the opportunity, but it's a lot of work to do.

Karl Keirstead (Software Equity Research)

Yep. Okay, thanks, Dev. And then for Mike. Mike, could you just because we're all trying to set up our models by quarter for fiscal 2025, is there any way to be more descriptive about how that $80 million, the sum of those two pieces, you know, tracked by quarter? And in particular, how much of the $80 million landed in the Q4 you just reported?

Michael Gordon (COO and CFO)

Yeah, so I don't have a quarterly breakdown. I guess what I would offer is, you know, throughout our life as a public company, including, you know, over the, you know, three prior quarters of this year, when there have been unusual trends, we've tried to call them out, so that people could understand both what was driving the results and looking forward, what would impact the compares. And so, you know, I think our historic comments should sort of leave a pretty good breadcrumb trail, you know, relative to things.

I think we've been very clear on the multiyear deals and the EA outperformance and when that's happened, and if you needed sort of a rule of thumb, you know, credits would typically unused credits or unused commitments would typically, you know, they map to the renewal cycle, and we've called out the very seasonality, you know, as it relates to that. So those would probably be the big things on the EA and other non-Atlas. You know, obviously, Q2 last year was a big quarter. We talked about, you know, Alibaba and other deals that hit in Q2. And so I think you can - it's not. You know, I wouldn't just divide by four. There are some differences quarter to quarter.

And then lastly, we did call out, for folks who look at the business on a sequential basis, the impact of Atlas on the Atlas numbers for Q1, given that there'll be a much more pronounced effect, given this is the Q1 where we'll see the impact of that change.

Karl Keirstead (Software Equity Research)

Okay, awesome. Thanks a lot.

Speaker 11

Hello, can you guys hear me? Because the line's coming out a bit.

Michael Gordon (COO and CFO)

Yes, we can hear you. Unfortunately, we can't hear the moderator, but we can hear you.

Speaker 11

Oh, terrific. Okay, well, thank you for having me on. I'd like to ask about Atlas Stream Processing. So that was announced in June 2023. I guess, can you just remind us of, like, you know, what is Mongo's reason to win in that segment of the market? And then any idea of when that product will likely go GA?

Michael Gordon (COO and CFO)

Yes. So, we announced, as you said, we announced, the private preview of stream processing, where we ended up having hundreds of development teams use the product. Now we're in a public preview, so if customers are interested, they can actually start using, the product today. Why are we in a position to win? For a couple reasons. One, this is purely focused on developer market. The data is mainly in JSON. It requires a flexible schema and is for real-time applications. Given all those things are kind of in, you know, are coordinating, we feel really well positioned because most of the alternatives have a very rigid or fixed schema, and with the variability of the data coming from these kind of events, that becomes much more problematic for customers to manage.

So we feel very good about our position there. In terms of timing of when we're going to go GA, we're just currently getting feedback and responding to feedback, and we wanna be very sure that we've addressed, you know, kind of the low-hanging fruit before we go generally available, but we're really excited about the opportunity that stream processing offers us.

Speaker 11

Yeah, ideal. Might just also follow on to that and then add in my kind of proper second question. The follow-on one is, is that, is stream processing embedded in the guidance for fiscal 2025? And then, the question I had is about the bottom line. The guidance, if I'm not mistaken, is a 10% op margins in fiscal 2025. Assuming the same beat as you guys did this year, so it was 6 points of beat, would put us at about 16 points of op margin exiting fiscal 2025, so kind of net flat year-on-year. Is that due to this kind of putting the kind of foot on the gas in terms of hiring and really trying to be aggressive at kind of adding headcount? Thank you.

Michael Gordon (COO and CFO)

Yeah. So, a couple different questions there. Let me try and get them all. So obviously, our plans related to stream processing, you know, are included, you know, in our guidance, but, we don't... You know, most of that will show up in Atlas overall, when you think about the results, and certainly whether it's, you know, new workloads or anything else, they tend to start off small and grow quickly in the first couple of quarters. But, I wouldn't think of it as a major move, needle mover in the context of the fiscal 25, results, but we're very excited about it over the long term. In terms of the op margin, yes, our guidance is, you know, to go backwards on operating margin relative to fiscal 24.

It will result in 500 basis points improvement over the two-year basis. And the thinking and the rationale related to that, is the fact that if you take a step back and you look at us relative to the IPO, we had mapped out needing around 55 points, of margin improvement to get to our target margins. With the fiscal, you know, 2024 results, we effectively delivered 50 of those 55 points, and yet are still at 2% market share. And so it makes sense to continue, investing in the opportunity, particularly on the sales productive capacity, as we talked about, but also, to execute against the product roadmap.

And so we will continue to do that, and that will take us backwards relative to last year, but positive 500 basis points on the two year basis. Tremendous. Thank you so much.

Operator (participant)

Thank you. One moment, please. Our next question comes from the line of Brad Sills of Bank of America. Your line is open.

Brad Sills (Analyst)

Oh, great. Thank you so much. I wanted to ask a question around the sales capacity. It sounds like at some point last year, you realized that you had underinvested, maybe pivoted to much towards margin expansion and then are now catching up. You know, in the guidance, if you could, you know, assume you had the sales capacity that you would prefer to be at this point, given the demand that you're seeing, would we be at a higher level of growth? You know, I'm just trying to parse out how much of the guide is factoring in, you know, those constraints on sales capacity that you've talked about.

Dev Ittycheria (President and CEO)

Yeah. So, thanks for your question. Yes, we, you know, given the macro uncertainty, especially coming out, you know, off, Q4 of last year, we did, you know, slow down hiring, quite meaningfully, and obviously, that showed up in our numbers, to the point that, Michael talked about in our op margin as well. You know, we obviously, know that we have a big opportunity in front of us, so we are growing our headcount between the mid and high teens. We think that's appropriate relative to the opportunities we see. And yes, if we had more productive sales capacity, the guidance would probably be higher. There's no question about that.

Michael Gordon (COO and CFO)

Yeah, I would just—Brad, I would just make sure it's clear. The slowing down in hiring was really macro related, and just sort of concerns about the environment. If you think back then, there were broad scale layoffs happening across the industry and everything else, and obviously, we successfully weathered the storm. I think we talked about on the last call, how with the benefit of hindsight, and the results that we put up and, how quickly, at least for us, things stabilized, we, you know, could have started investing sooner. And so I think in the call, the year ago call, we talked about adding single digit headcount growth relative to, I think, 30% headcount growth in the prior year.

We wound up adding 9%, so you know, obviously at the high end of what would constitute single digits, in part because of the stabilization that we did see. But to the comments that affect the op income guide, and everything else, that was very back-end loaded, right? So those investments will much more affect the fiscal 2025 P&L, and that's really what we're reflecting into.

Brad Sills (Analyst)

Understood. Thanks so much for that. And then one more, if I may, please. You guys have such broad exposure to different industries. With the advent of AI coming into your business and some of the early progress you're seeing, are there any verticals that you would point to where you're seeing more activity, perhaps, than others? Any use cases you might point to, just to give us a sense for where that early adopter, you know, might come from? Thank you.

Dev Ittycheria (President and CEO)

Yeah. That, in regards to use cases, we're seeing most customers focus on driving efficiencies in their business because, you know, their existing baseline of costs are well known, so it's much easier for them to determine how much value they can derive by using some of these new AI technologies. So I see the first wave of, you know, applications being around reducing costs. You've seen some announcement by some customers as saying, you know, focusing on things like customer support and customer service. They really have found ways to dramatically reduce their cost. That's not surprising to me. I think code generation and just increasing developer productivity is another area.

I think those are gonna be kind of two areas where there's low-hanging fruit, but then I think you're gonna see customers focus on delivering, you know, better experiences for their customers and then find new streams of growth. And so I think it'll be coming in phases. And so in terms of across industries, I think it's obviously there's some constraints on some customers based on the regulated nature of their industry, but in general, we see basically, you know, high interest across almost every industry that we operate in.

Brad Sills (Analyst)

That's exciting. Thank you so much, Dev.

Dev Ittycheria (President and CEO)

Thank you.

Operator (participant)

Thank you. One moment. Our next question comes from the line of Rishi Jaluria of RBC. Your line is open.

Rishi Jaluria (Managing Director, Software Equity Research)

Oh, wonderful. Hey, Dev. Hey, Michael. Thanks so much for taking my question. I wanted to first start with Relational Migrator. Dev, can you talk a little bit about, kind of what demand for that looks like? And when customers are talking to you, are they more focused around the value prop, being around cost savings that they get from moving from legacy, relational databases over to MongoDB? Is it more about the flexibility around, the technology itself? And maybe if you could tie in, you know, how you expect now with GenAI as an accelerator, how that can impact the timeline of migrating workloads from relational over to MongoDB. Then I've got a quick follow-up to Michael.

Dev Ittycheria (President and CEO)

Sure. When we talk to customers, and remember, even at our IPO, we had a meaningful number of customers migrating off relational to MongoDB. So they tend to come in three categories of reasons why. First is that the data models become so brittle with the relational architecture that it's very hard to build new features and be responsive to their customers, and so they just feel like their ability to innovate has slowed down. The second reason is that the system is just not scaling or performing, given the increased number of users or the large amount of data that they have to process, that they realize that they have to get off a legacy platform.

And the third reason is just the cost of the underlying platform and the relative to the ROI that application is providing. So it typically falls...

In one of those three buckets. Sometimes customers may have all three or maybe two of the three that are driving that demand, and then there's typically some compelling event. Maybe there's some milestones they wanna hit, maybe there's a renewal coming up with the incumbent vendor that's driving them to potentially move off that vendor as quickly as possible. As I said, with Relational Migrator, there's three parts to it. There's mapping of the schema from a, you know, tabular relational schema to a document-based schema in MongoDB. Then there's actually moving the data, mapping to the new schema, and then there's the rewriting of the application. And so we have done lots of those already pre-Gen AI, and some customers take a, you know, I wanna rewrite everything.

Some customers take, I'll do it on a microservices basis, where I'll start peeling off functionality of the existing application and move it, and move that functionality to the new application and do that over time. It really depends on the customer's use case and their business needs. Yes, with Gen AI, we do expect that rewriting the application to become easier and hence lower the cost of essentially switching, which by definition then expands the amount of customers and workloads you can go after. I would say, on top of the three reasons I gave you in terms of why people move, there's now an emerging fourth reason, which is enabling their data and their applications to be more AI-enabled.

So it's not just, you know, moving to a more modern platform, but making them more AI-enabled, and so that's also something that's getting customers' interest. And to your question on timing, as I said, I think this year that we're gonna see a lot of pilots and people trying out these new AI capabilities. And I think as the technology improves, as we learn more, you know, I think you're gonna see that scale much more quickly after that.

Rishi Jaluria (Managing Director, Software Equity Research)

Wonderful. Really helpful. And then, Michael, just quickly, you know, you put up your first free cash flow positive year in public company history. Just as you think about the margin guidance for next year, how should we be thinking about cash conversion going forward? Thanks.

Michael Gordon (COO and CFO)

Yeah. So I think the two factors to think about in terms of cash conversion are, you know, within Atlas, there's this dynamic where, you know, we are reducing and continuing to see, you know, less upfront Atlas. Obviously, we're, you know, hitting the anniversary of that, and that's what's creating the headwind on the revenue front and the tough compare. But that's with Atlas at 68% of revenue, and so if you assume that Atlas is going to increase as a percent of revenue, I think that will sort of further drive the divergence. And then the only other big delta is things related to SBC and stuff like that.

But I think it's the Atlas dynamic when you think about, you know, potential changes from a cash conversion standpoint. I think is where I'd focus and the impact if you assume that Atlas is gonna be a larger percent of the business.

Rishi Jaluria (Managing Director, Software Equity Research)

All right. Very helpful. Thank you, guys.

Operator (participant)

Thank you. One more please. Second comes from the line of Tyler Radke of Citi. Your line is open.

Tyler Radke (Managing Director)

Hey, can you hear me okay?

Michael Gordon (COO and CFO)

We can.

Dev Ittycheria (President and CEO)

Hey, Tyler. Evening.

Tyler Radke (Managing Director)

Okay, cool. Hey, sorry about that. The line was a little choppy. Dev wanted to ask you just a question as it relates to competition. Obviously, been a busy week at both Snowflake and Databricks, with Frank Slootman retiring, and I hope you're not going anywhere soon. But Databricks announcing, you know, pretty impressive growth. I guess, how do you kinda think about your positioning relative to those two vendors, especially with the new CEO kind of more of a technical focus at Snowflake, and you know, a Unistore product coming out later this year? Just frame for us how you're thinking about it, especially as you know, the Gen AI momentum increases over the coming years.

Dev Ittycheria (President and CEO)

Yeah. So, first of all, I'm very committed to MongoDB. I'm very excited about the opportunity here, so I have no plans to go anywhere. Second, in regards to Snowflake and Databricks, we don't typically compete with them, right? Because they're focused on analytical workloads, we're focused on operational workloads, so those are two very different sets of use cases. The big difference in terms of how customer buy, typically, data warehouses and data lakes tends to be a centralized decision. Organizations standardize on one platform, and then basically move their existing data to those platforms.

Where I would say, you know, operational platforms tends to be a more decentralized decision, where different development teams, different lines of businesses, etc, based on the requirements for their application, will choose, will make their own independent decisions about what they think they need to do. And we've always talked about how we start with one team and then try and expand from there, and why there's so much focus on expanding within accounts and becoming a standard, with an account, because then that accelerates the amount of workloads we capture. But those are two very different kind of customer buying behaviors in terms of analytical versus operational. With regards to, you know, the potential overlap, you know, we are embedding more analytics capabilities.

We have a very sophisticated aggregation framework, so people can do real-time processing of analytics on our platform with real-time data. You know, remember, data lakes and data warehouses have, you know, it's a batch process to get that data into their platforms, so they're not dealing with the, you know, real-time data. And then, with regards to Unistore, listen, you know, there's like over 300 databases in the marketplace, so not sure. You know, I have a lot of respect for the Snowflake people. I'm not sure, you know, we've heard noises about Unistore for a long time, but, we feel very comfortable and confident in our position, just given the investments we made in our platform and the large customers we have, and frankly, the popularity of our platform with developers.

Remember, developers are not a persona that these other players typically go after. They go after more the analyst and the data scientist community. We're very focused on developers.

Tyler Radke (Managing Director)

That's helpful. Michael, just a quick follow-up for you on the overage comments you made. I guess a couple questions. I mean, first of all, the $40 million is what I think you called out. That seems pretty high for last year, just considering we hadn't really heard about it since Q4 of last year, where you called out only several million of overage credits. I guess, can you just frame for us, was that consistent with what you've seen in prior years? And I guess, you know, you're obviously embedding that that doesn't continue next year. Is that a change in the way that you're you know, recognizing overage revenue, or that's just you don't expect that to happen because all your contracts have been reset? Thank you.

Michael Gordon (COO and CFO)

Yeah. Just two quick things in the interest of time. Reminder, the several was the incremental amount over and above the normal amount that we experienced. That's the sort of to the principle that we take, where we try and call out differences or variations from sort of the normal behavior. And so it was several million dollar more than what we would normally see. The $40 million is the amount that was recognized in fiscal 2024. We do see that going to zero effectively. And you're right, that's directly as a result of the changes that we've made, you know, in the go-to-market, and the fact that we are not prioritizing commitments and haven't, you know, since the start of last fiscal year.

And so the result of that is that you have many fewer commitments, and unused, the revenue for unused credits simply just reflects the revenue at the end of that contract period that you haven't realized or recognized through consumption. And so we expect that to go away because we've taken a different approach to the market to drive, you know, greater adoption of workloads and all the other things that we've talked about, which is the rationale for sort of doing that in the first place. So hopefully, that helps put all that in context.

Tyler Radke (Managing Director)

It does. Thank you.

Operator (participant)

Thank you. Okay. That does conclude our conference for today. I'd like to turn the call back over to Dev, CEO, for any closing remarks.

Dev Ittycheria (President and CEO)

Thank you. Again, I thank everyone for joining us today. I just want to reiterate that we had a strong quarter and year as we execute on our opportunity. We do expect fiscal 2025 to play out similarly to fiscal 2024, with a healthy new business and a stable consumption, and stable consumption trends. We are very excited about the long-term AI opportunity, but still believe it's early days, as customers are mainly in the experimentation and prototyping stages of building AI applications. Our priorities for fiscal 2025 are to invest in deepening our product advantage, while remaining focused on acquiring new workloads and establish our - establishing ourselves as the standard for building modern applications. So thank you again for joining us, and we'll talk to you soon. Take care. Bye-bye.

Operator (participant)

Thank you. Ladies and gentlemen, this does conclude today's conference.