Revenue Growth - Subscription revenue increased by $50.5 million during Q3 2023 compared to Q3 2022, with a dollar-based net retention rate of just under 130% as of September 30, 2023[104]. - Confluent Cloud revenue represented 46% of total revenue for Q3 2023, up from 38% in Q3 2022, indicating a growing contribution to subscription revenue[85]. - Total revenue for Q3 2023 was composed of 95% subscription revenue and 5% services revenue, compared to 91% and 9% respectively in Q3 2022[102]. - Subscription revenue increased by $146.7 million (39%) during the nine months ended September 30, 2023, compared to the same period in 2022, reaching $526.3 million[114][142]. - Total revenue for the nine months ended September 30, 2023, was $563.8 million, a 35% increase from $417.3 million in the same period in 2022[142]. Profitability and Margins - Gross profit margin improved to 72% in Q3 2023 from 65% in Q3 2022, reflecting better cost management[102]. - Gross profit for the nine months ended September 30, 2023, was $391.2 million, reflecting a 46% increase compared to $268.8 million in 2022[144]. - Operating loss narrowed to $54 million in Q3 2023 from $78 million in Q3 2022, indicating improved operational efficiency[102]. Expenses - Research and development expenses increased by $21.1 million in Q3 2023, primarily due to higher personnel-related costs and stock-based compensation[108]. - Sales and marketing expenses were $128.6 million in Q3 2023, representing 64% of total revenue, down from 75% in Q3 2022[109]. - Research and development expenses rose by $69.6 million (95%) during the nine months ended September 30, 2023, driven by increased personnel-related costs and stock-based compensation[147]. - Sales and marketing expenses increased by $51.3 million (66%) during the nine months ended September 30, 2023, mainly due to higher personnel-related costs and stock-based compensation[148]. - General and administrative expenses increased by $13.1 million for the nine months ended September 30, 2023, primarily due to a $10.4 million rise in personnel-related costs and allocated overhead costs[149]. Other Income and Charges - Other income increased by $12.8 million in Q3 2023, primarily due to higher yields on marketable securities[112]. - Other income increased significantly by $45.2 million (889%) during the nine months ended September 30, 2023, reaching $50.3 million[122]. - Restructuring and other related charges amounted to $34.9 million, representing 6% of revenue for the nine months ended September 30, 2023[122]. Cash Flow and Liquidity - Cash, cash equivalents, and marketable securities totaled $1,872.8 million as of September 30, 2023, indicating strong liquidity for operational needs[151]. - The net loss for the nine months ended September 30, 2023, was $348.7 million, with cash used in operating activities amounting to $115.9 million[154]. - Cash provided by financing activities was $91.4 million for the nine months ended September 30, 2023, mainly from stock option exercises and employee stock purchase plan[157]. - Cash used in investing activities was $816.3 million for the nine months ended September 30, 2022, primarily due to marketable securities purchases[156]. - The company believes existing cash and marketable securities will be sufficient to fund both short-term and long-term operating and capital needs[151]. Market and Business Model - The company expects greater negative impacts on consumption growth rates in the coming quarters due to macroeconomic factors and customer preferences shifting towards consumption-based models[83]. - Confluent's business model relies on customer renewals and increasing existing customer consumption, with significant opportunities for revenue growth as customers migrate more data to the public cloud[87]. Tax and Other Financial Metrics - The effective tax rate for the three months ended September 30, 2023, was (1.7)%, slightly higher than (1.6)% in the same period of 2022[113]. - Non-cash charges included $261.0 million of stock-based compensation expense for the nine months ended September 30, 2023[154]. Risk Management - The company established a hedging program in December 2022 to mitigate foreign currency fluctuations[190]. - The fair value of the $1.1 billion convertible senior notes issued in December 2021 is subject to market risk due to the conversion feature[189].

Q2 2023 Earnings Call August 2, 2023 2 As a reminder, certain financial measures we use on our call today and in the presentation are expressed on a non-GAAP basis. We use these non-GAAP financial measures and other key metrics internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. We believe these non-GAAP financial measures, when taken collectively, may be helpful to investors because they provide consistency and comparability with past f ...

Confluent, Inc. (NASDAQ:CFLT) Q2 2023 Earnings Conference Call August 2, 2023 4:30 PM ET Company Participants Shane Xie - Investor Relations Jay Kreps - Co-Founder and Chief Executive Officer Steffan Tomlinson - Chief Financial Officer Rohan Sivaram - Incoming Chief Financial Officer Conference Call Participants Jason Ader - William Blair Kash Rangan - Goldman Sachs Raimo Lenschow - Barclays Brad Zelnik - Deutsche Bank Rob Owens - Piper Sandler Gregg Moskowitz - Mizuho Michael Cikos - Needham Bradley Sil ...

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements (unaudited)](index=5&type=section&id=ITEM%201.%20Financial%20Statements%20(unaudited)) Confluent's unaudited financial statements as of June 30, 2023, show **$2.33 billion** total assets, a **$256.0 million** net loss, and **$106.8 million** net cash used in operations for the six months ended Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | $2,139,658 | $2,198,125 | | **Total assets** | $2,327,640 | $2,344,849 | | **Total current liabilities** | $423,358 | $424,330 | | **Total liabilities** | $1,566,254 | $1,575,372 | | **Total stockholders' equity** | $761,386 | $769,477 | Condensed Consolidated Statements of Operations Data (in thousands, except per share data) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | **Total revenue** | $363,587 | $265,546 | | **Gross profit** | $247,523 | $170,260 | | **Operating loss** | $(285,461) | $(228,789) | | **Net loss** | $(255,980) | $(230,618) | | **Net loss per share, basic and diluted** | $(0.87) | $(0.84) | Condensed Consolidated Statements of Cash Flows Data (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | **Net cash used in operating activities** | $(106,832) | $(88,503) | | **Net cash used in investing activities** | $(81,424) | $(803,539) | | **Net cash provided by financing activities** | $65,221 | $45,803 | - In January 2023, the company acquired Immerok GmbH for **$54.9 million** in cash, resulting in **$43.5 million** of goodwill and a **$2.6 million** developed technology intangible asset[98](index=98&type=chunk)[125](index=125&type=chunk) - The company recorded restructuring charges of **$34.3 million** for the six months ended June 30, 2023, primarily related to an **8%** workforce reduction and lease abandonment charges[204](index=204&type=chunk)[135](index=135&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Confluent's revenue grew **37%** to **$363.6 million** for the six months ended June 30, 2023, driven by Confluent Cloud, while focusing on efficiency and maintaining strong customer metrics despite net losses Revenue Performance (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | YoY Growth | | :--- | :--- | :--- | :--- | | **Subscription Revenue** | $337,055 | $240,938 | 40% | | **Services Revenue** | $26,532 | $24,608 | 8% | | **Total Revenue** | $363,587 | $265,546 | 37% | - Confluent Cloud's contribution to total revenue increased to **43%** for the six months ended June 30, 2023, up from **32%** in the same period of 2022, highlighting the strategic shift towards its fully-managed SaaS offering[217](index=217&type=chunk) Key Business Metrics Comparison (as of June 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | **Total Customers** | ~4,830 | ~4,120 | | **Customers with >$100k ARR** | 1,144 | 862 | | **Remaining Performance Obligations (RPO)** | $791.4M | $591.3M | | **Dollar-Based Net Retention Rate (NRR)** | >130% | Not specified, but over 130% in 2023 | - In response to macroeconomic uncertainty, Confluent implemented a restructuring plan in January 2023, which included an **8%** workforce reduction, to adjust its cost structure and improve operating efficiency[187](index=187&type=chunk)[204](index=204&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=50&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks are interest rate fluctuations affecting its **$1.85 billion** in cash and foreign currency risk from operating expenses, partially mitigated by a hedging program - As of June 30, 2023, the company held **$1.85 billion** in cash, cash equivalents, and marketable securities, which are subject to interest rate risk[496](index=496&type=chunk) - The company is exposed to foreign currency risk as a portion of its operating expenses are denominated in foreign currencies. To mitigate this, a hedging program was initiated in December 2022[335](index=335&type=chunk)[316](index=316&type=chunk) - The fair value of the company's **$1.1 billion** convertible senior notes is subject to market risk, primarily linked to the price of its Class A common stock, but this does not impact the financial statements as the notes are carried at face value less unamortized costs[334](index=334&type=chunk) [Controls and Procedures](index=51&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls, acknowledging inherent limitations of any control system - Management, including the CEO and CFO, concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[318](index=318&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[319](index=319&type=chunk) - The company acknowledges that due to inherent limitations, no control system can provide absolute assurance or prevent all errors and fraud[1](index=1&type=chunk) [PART II. Other Information](index=52&type=section&id=PART%20II.%20Other%20Information) [Legal Proceedings](index=52&type=section&id=ITEM%201.%20Legal%20Proceedings) Confluent is not currently involved in any legal proceedings that would materially and adversely affect its business, financial condition, or operations - Confluent is not presently a party to any legal proceedings that would materially and adversely affect its business, results of operations, financial condition, or cash flows[3](index=3&type=chunk) [Risk Factors](index=53&type=section&id=ITEM%201A.%20Risk%20Factors) Confluent faces significant risks including a history of operating losses, dependence on its data-in-motion offering, intense competition, dual-class stock structure, and cybersecurity threats - The company has a history of operating losses and may not achieve or sustain profitability, having incurred a net loss of **$256.0 million** for the six months ended June 30, 2023[7](index=7&type=chunk)[26](index=26&type=chunk) - Substantially all revenue is derived from the data-in-motion offering. Failure of this offering to satisfy customer demand or compete with alternatives would harm the business[9](index=9&type=chunk)[341](index=341&type=chunk) - The company faces intense competition from internal IT teams using open-source software, major public cloud providers (AWS, Azure, GCP) who are also partners, and other legacy vendors[29](index=29&type=chunk)[359](index=359&type=chunk)[348](index=348&type=chunk) - The dual-class stock structure concentrates approximately **81.1%** of voting power with pre-IPO stockholders (as of June 30, 2023), limiting the influence of Class A stockholders on corporate matters[17](index=17&type=chunk)[632](index=632&type=chunk) - The business is exposed to significant cybersecurity risks, including data breaches. A past incident involving a third-party vendor (Codecov) resulted in unauthorized access to source code[14](index=14&type=chunk)[403](index=403&type=chunk)[407](index=407&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=102&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and no material change in the planned use of proceeds from its Initial Public Offering - There were no unregistered sales of equity securities during the reporting period[686](index=686&type=chunk) - There has been no material change in the planned use of proceeds from the company's IPO, which was declared effective on June 23, 2021[535](index=535&type=chunk) [Defaults Upon Senior Securities](index=102&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period covered by this report - The company reports "None" regarding any defaults upon senior securities[687](index=687&type=chunk) [Mine Safety Disclosures](index=102&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to Confluent[536](index=536&type=chunk) [Other Information](index=103&type=section&id=ITEM%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023 - During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[673](index=673&type=chunk) [Exhibits](index=104&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents and Sarbanes-Oxley Act certifications - The report includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906[691](index=691&type=chunk)[692](index=692&type=chunk) - Exhibits filed include corporate governance documents and interactive data files (Inline XBRL)[691](index=691&type=chunk) [Signatures](index=105&type=section&id=Signatures) [Signatures](index=105&type=section&id=Signatures) The Quarterly Report on Form 10-Q was signed on August 2, 2023, by Confluent, Inc.'s Principal Executive, Financial, and Accounting Officers - The report is signed by the company's Principal Executive Officer (Edward Jay Kreps), Principal Financial Officer (Steffan Tomlinson), and Principal Accounting Officer (Ying Christina Liu)[694](index=694&type=chunk) - The report was signed on August 2, 2023[541](index=541&type=chunk)

Confluent, Inc. (NASDAQ:CFLT) Q1 2023 Earnings Conference Call May 3, 2023 4:30 PM ET Company Participants Shane Xie - Investor Relations Jay Kreps - Co-Founder and Chief Executive Officer Steffan Tomlinson - Chief Financial Officer Conference Call Participants Sanjit Singh - Morgan Stanley Michael Turrin - Wells Fargo Rob Owens - Piper Sandler Derrick Wood - TD Cowen Howard Ma - Guggenheim Securities Raimo Lenschow - Barclays Gregg Moskowitz - Mizuho Securities Eric Heath - KeyBanc Rudy Kessinger - D.A. Da ...

Chief Customer and Partner Officer at ServiceNow Alyssa Henry CEO at Square c Google Cloud % paloalto Rey Perez Chief Customer Officer Chad Verbowski Chief Technology Officer Steffan Tomlinson Chief Financial Officer Microsoft ◎ New Relic. ORACLE Gunjan Aggarwal Chief People Officer ERICSSON Christina Liu Chief Accounting Officer Melanie Vinson Chief Legal Officer Zendesk Cloud-Native Complete Everywhere (ऋ | --- | --- | --- | --- | |-----------------------|------------|-------|-------| | Confluent \nMicros ...

PART I [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=5&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) Presents the unaudited condensed consolidated financial statements for Q1 2023, detailing revenue, net loss, balance sheet, and cash flows, with explanatory notes [Condensed Consolidated Financial Statements](index=5&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the condensed consolidated statements of operations, balance sheets, and cash flows for Q1 2023, highlighting key financial performance and position metrics Condensed Consolidated Statements of Operations (Q1 2023 vs Q1 2022) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | **Total Revenue** | **$174,302** | **$126,139** | | Subscription Revenue | $160,567 | $113,920 | | Gross Profit | $116,158 | $80,362 | | Operating Loss | ($166,093) | ($111,482) | | **Net Loss** | **($152,555)** | **($112,987)** | | Net Loss Per Share | ($0.52) | ($0.41) | Condensed Consolidated Balance Sheet Highlights | Metric | As of March 31, 2023 (in thousands) | As of December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $343,460 | $435,781 | | Marketable securities | $1,506,392 | $1,491,044 | | **Total Assets** | **$2,292,825** | **$2,344,849** | | Total Liabilities | $1,547,974 | $1,575,372 | | Total Stockholders' Equity | $744,851 | $769,477 | Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($77,772) | ($55,031) | | Net cash used in investing activities | ($52,483) | ($311,734) | | Net cash provided by financing activities | $37,729 | $38,468 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, significant events like the Immerok acquisition and restructuring, revenue disaggregation, and remaining performance obligations - In January 2023, the Company acquired Immerok GmbH for **$54.9 million** in cash, resulting in **$43.5 million** of goodwill[77](index=77&type=chunk)[123](index=123&type=chunk) Revenue Disaggregation (Q1 2023 vs Q1 2022) | Category | Q1 2023 % of Total Revenue | Q1 2022 % of Total Revenue | | :--- | :--- | :--- | | **By Geography** | | | | United States | 60% | 63% | | International | 40% | 37% | | **By Product/Service** | | | | Confluent Cloud | 42% | 31% | | Confluent Platform - PCS | 39% | 44% | | Confluent Platform - License | 11% | 15% | | Services | 8% | 10% | - In January 2023, the company approved a restructuring plan, including an **8% workforce reduction**, resulting in **$33.4 million** of charges in Q1 2023, consisting of **$17.7 million** in employee costs and **$15.7 million** in lease abandonment charges[170](index=170&type=chunk) - Remaining Performance Obligations (RPO) totaled **$742.6 million** as of March 31, 2023, with approximately **64%** expected to be recognized as revenue over the next 12 months[114](index=114&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=30&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results of operations for Q1 2023, analyzing key performance drivers, strategic initiatives, and financial trends [Overview and Key Business Metrics](index=30&type=section&id=Overview%20and%20Key%20Business%20Metrics) This section outlines Confluent's strategic focus on cloud adoption and customer expansion, detailing key business metrics and management's approach to macroeconomic challenges - The company is navigating adverse macroeconomic conditions by streamlining operating expenses, including a workforce reduction in January 2023, while prudently investing in growth[157](index=157&type=chunk) Key Business Metrics | Metric | As of March 31, 2023 | As of March 31, 2022 | YoY Growth | | :--- | :--- | :--- | :--- | | Total Customers | ~4,690 | ~4,120 | 14% | | Customers with >$100k ARR | 1,075 | 803 | 34% | | Remaining Performance Obligations (RPO) | $742.6 million | $551.1 million | 35% | | Dollar-Based Net Retention Rate (NRR) | >130% | N/A | N/A | - Confluent Cloud revenue grew to **42%** of total revenue for Q1 2023, up from **31%** in Q1 2022, indicating a successful shift towards its cloud-native SaaS offering[611](index=611&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section details the company's Q1 2023 financial results, including revenue growth, gross profit, operating expenses, and the resulting operating loss Revenue Comparison (Q1 2023 vs Q1 2022) | Revenue Type | Q1 2023 (in thousands) | Q1 2022 (in thousands) | YoY Change | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription | $160,567 | $113,920 | $46,647 | 41% | | Services | $13,735 | $12,219 | $1,516 | 12% | | **Total Revenue** | **$174,302** | **$126,139** | **$48,163** | **38%** | Gross Margin Comparison | Margin Type | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Subscription Gross Margin | 73% | 71% | | Services Gross Margin | (11)% | 0% | | **Total Gross Margin** | **67%** | **64%** | - Operating expenses increased primarily due to a **$33.4 million** restructuring charge, a **$27.2 million (47%)** increase in R&D expenses, and a **$21.9 million (21%)** increase in Sales & Marketing expenses[244](index=244&type=chunk)[211](index=211&type=chunk)[608](index=608&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity position, including cash, cash equivalents, and marketable securities, and analyzes cash flows from operating, investing, and financing activities - The company's principal sources of liquidity as of March 31, 2023, were cash, cash equivalents, and marketable securities totaling **$1,849.9 million**[216](index=216&type=chunk) - Net cash used in operating activities was **$77.8 million** for Q1 2023, primarily consisting of a net loss of **$152.6 million**, adjusted for non-cash charges including **$79.3 million** of stock-based compensation and **$15.7 million** of lease abandonment charges[217](index=217&type=chunk) - Cash used in investing activities was **$52.5 million**, mainly due to **$45.8 million** paid for the Immerok business combination and net purchases of marketable securities[638](index=638&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures about Market Risk](index=45&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the company's primary market risk exposures, including interest rate risk on its financial instruments and foreign currency risk on operating expenses, and outlines mitigation strategies - The company is exposed to interest rate risk on its **$1.85 billion** portfolio of cash, cash equivalents, and marketable securities, and on the fair value of its **$1.1 billion** convertible senior notes[253](index=253&type=chunk)[674](index=674&type=chunk) - Foreign currency risk exists as a portion of operating expenses are denominated in foreign currencies, and a hedging program was established in December 2022 to reduce this impact[643](index=643&type=chunk)[254](index=254&type=chunk) [ITEM 4. Controls and Procedures](index=46&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management's evaluation concludes that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[225](index=225&type=chunk) - There were no material changes to the company's internal control over financial reporting during the quarter[256](index=256&type=chunk) PART II. OTHER INFORMATION [ITEM 1. Legal Proceedings](index=47&type=section&id=ITEM%201.%20Legal%20Proceedings) The company reports no current legal proceedings expected to have a material adverse effect on its business, financial condition, or cash flows - As of the filing date, Confluent is not a party to any legal proceedings that would be expected to have a material adverse effect on the company[647](index=647&type=chunk) [ITEM 1A. Risk Factors](index=48&type=section&id=ITEM%201A.%20Risk%20Factors) This section outlines significant risks to the company's business, including operating losses, macroeconomic uncertainty, intense competition, cybersecurity threats, customer retention, and its dual-class stock structure - The company has a history of operating losses, with a net loss of **$152.6 million** in Q1 2023, and may not achieve or sustain profitability in the future[267](index=267&type=chunk)[708](index=708&type=chunk) - The business faces intense competition from internal IT teams using open-source software (Apache Kafka), and from major public cloud providers like AWS, Azure, and GCP, which offer competing managed services[693](index=693&type=chunk) - Cybersecurity incidents pose a significant risk, highlighted by the 2021 Codecov breach where attackers gained unauthorized access and copied private source code repositories[565](index=565&type=chunk) - The dual-class stock structure concentrates approximately **85.3%** of voting power with pre-IPO stockholders (as of March 31, 2023), limiting the influence of Class A common stockholders on corporate matters[480](index=480&type=chunk)[460](index=460&type=chunk) - The business depends on retaining existing customers and expanding their usage, with a key risk that customers may not renew subscriptions or may choose open-source alternatives or competing products[261](index=261&type=chunk)[420](index=420&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=97&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no recent unregistered equity sales and no material change in the planned use of proceeds from its June 2021 IPO - There have been no material changes in the planned use of proceeds from the company's June 2021 IPO[542](index=542&type=chunk) [ITEM 5. Other Information](index=98&type=section&id=ITEM%205.%20Other%20Information) On April 28, 2023, the Board of Directors amended the company's bylaws to align with the SEC's universal proxy rule and update stockholder nomination and proposal requirements - On April 28, 2023, the Board of Directors amended the company's bylaws to align with the SEC's universal proxy rule (Rule 14a-19) and update requirements for stockholder nominations and proposals[545](index=545&type=chunk)[560](index=560&type=chunk) [ITEM 6. Exhibits](index=99&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the 10-Q report, including Amended and Restated Bylaws, CEO/CFO certifications, and XBRL documents - The list of exhibits includes the Amended and Restated Bylaws, CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and XBRL data files[527](index=527&type=chunk)[562](index=562&type=chunk)

Part I [Business](index=6&type=section&id=Item%201.%20Business) Confluent provides a data infrastructure platform, built on Apache Kafka, enabling real-time data motion for enterprises through self-managed and cloud-native SaaS offerings, driving growth via a land-and-expand model and international expansion - Confluent aims to establish data in motion as a new data infrastructure category, serving as a real-time central nervous system for enterprises [21](index=21&type=chunk) - The company offers **Confluent Platform** (self-managed software) and **Confluent Cloud** (fully-managed SaaS) on major cloud providers [36](index=36&type=chunk)[47](index=47&type=chunk) - The business model leverages a 'Data in Motion Journey' for customer expansion, resulting in a dollar-based net retention rate of **just under 130%** as of December 31, 2022 [32](index=32&type=chunk)[45](index=45&type=chunk) - International revenue constituted **38% of total revenue** for the year ended December 31, 2022, serving customers in over 100 countries [46](index=46&type=chunk) - As of December 31, 2022, Confluent employed **2,761 people** across 22 countries, with **62%** in the United States [77](index=77&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including persistent operating losses, macroeconomic uncertainty, intense competition, cybersecurity threats, and concentrated voting power from its dual-class stock structure - The company reported a net loss of **$452.6 million** in 2022 and an accumulated deficit of **$1.2 billion** as of December 31, 2022, with no assurance of future profitability [99](index=99&type=chunk) - Macroeconomic uncertainties, such as inflation and potential recession, have extended sales cycles and increased IT spending scrutiny, potentially impacting future results [102](index=102&type=chunk) - The business heavily relies on its data-in-motion offering, with Confluent Platform contributing **61% of subscription revenue** in 2022, a decrease from 73% in 2021 [106](index=106&type=chunk)[107](index=107&type=chunk) - Key competition arises from internal IT teams utilizing open-source software and major public cloud providers like AWS, Microsoft Azure, and Google Cloud [112](index=112&type=chunk)[113](index=113&type=chunk) - A 2021 security breach at third-party vendor Codecov led to unauthorized access and copying of Confluent's private source code, exposing cybersecurity and supply-chain vulnerabilities [160](index=160&type=chunk) - The dual-class stock structure concentrates approximately **87.1% of voting power** with Class B common stockholders as of December 31, 2022 [258](index=258&type=chunk) [Unresolved Staff Comments](index=69&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the Securities and Exchange Commission - None [290](index=290&type=chunk) [Properties](index=69&type=section&id=Item%202.%20Properties) Confluent leases its corporate headquarters in Mountain View, California, and other global offices, holding no owned real property - The company's headquarters in Mountain View, California, consist of approximately **75,475 square feet** of leased space, with the lease expiring in 2029 [291](index=291&type=chunk) [Legal Proceedings](index=69&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings that would materially adversely affect its business or financial condition - Confluent is not currently a party to any material legal proceedings [292](index=292&type=chunk) [Mine Safety Disclosures](index=69&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - None [293](index=293&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=70&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Confluent's Class A common stock trades on Nasdaq under 'CFLT' since its 2021 IPO, with the company retaining earnings for growth and no plans for future cash dividends - Class A Common Stock has been listed on the Nasdaq Global Select Market under the symbol **'CFLT'** since June 24, 2021 [296](index=296&type=chunk) - The company has never declared or paid cash dividends, intending to retain all funds for future business growth [298](index=298&type=chunk) - The Initial Public Offering (IPO) on June 28, 2021, generated aggregate gross proceeds of **$828.0 million** [300](index=300&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=72&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses 51% revenue growth in 2022, driven by customer acquisition and Confluent Cloud adoption, alongside continued net losses from growth investments and macroeconomic impacts [Key Business Metrics](index=76&type=section&id=Key%20Business%20Metrics) Key business metrics demonstrate strong growth, with Remaining Performance Obligations reaching $740.7 million and a dollar-based net retention rate just under 130% Key Business Metrics as of December 31 | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Remaining Performance Obligations (RPO) (in millions) | $740.7 | $500.6 | $261.7 | | Customers with ≥ $100k in ARR | 991 | 734 | 513 | | Dollar-Based Net Retention Rate (NRR) | Just under 130% | N/A | N/A | [Results of Operations](index=79&type=section&id=Results%20of%20Operations) In fiscal year 2022, total revenue increased 51% to $585.9 million, driven by subscription growth, though net loss widened to $452.6 million due to increased operating expenses Consolidated Statements of Operations Highlights (in thousands) | Line Item | FY 2022 | FY 2021 | YoY Change | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$585,944** | **$387,864** | **$198,080** | **51%** | | Subscription Revenue | $535,009 | $347,099 | $187,910 | 54% | | Services Revenue | $50,935 | $40,765 | $10,170 | 25% | | **Gross Profit** | **$383,529** | **$250,572** | **$132,957** | **53%** | | Gross Margin | 65% | 65% | - | - | | **Operating Loss** | **($462,674)** | **($339,620)** | **($123,054)** | **36%** | | **Net Loss** | **($452,551)** | **($342,801)** | **($109,750)** | **32%** | Operating Expenses (in thousands) | Expense Category | FY 2022 | FY 2021 | YoY Change | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Research and development | $264,041 | $161,925 | $102,116 | 63% | | Sales and marketing | $456,452 | $319,331 | $137,121 | 43% | | General and administrative | $125,710 | $108,936 | $16,774 | 15% | | **Total operating expenses** | **$846,203** | **$590,192** | **$255,011** | **43%** | [Liquidity and Capital Resources](index=84&type=section&id=Liquidity%20and%20Capital%20Resources) Confluent maintains strong liquidity with $1.93 billion in cash and marketable securities, primarily funded by equity and debt, despite increased net cash used in operating activities - Principal liquidity sources as of December 31, 2022, totaled **$1.927 billion** in cash, cash equivalents, and marketable securities [364](index=364&type=chunk) - In December 2021, the company issued **$1.1 billion** in 0% convertible senior notes due 2027, yielding net proceeds of **$1.08 billion** [363](index=363&type=chunk) Summary of Cash Flows (in thousands) | Cash Flow Category | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | ($157,333) | ($105,060) | ($82,057) | | Net cash used in investing activities | ($865,805) | ($400,583) | ($176,859) | | Net cash provided by financing activities | $82,241 | $1,844,514 | $276,758 | [Quantitative and Qualitative Disclosures About Market Risk](index=87&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Confluent faces market risks from interest rate fluctuations on its $1.93 billion portfolio and convertible notes, and foreign currency exposure on operating expenses, mitigated by a hedging program - The company faces interest rate risk on its **$1.93 billion** portfolio of cash, cash equivalents, and marketable securities, and its **$1.1 billion** convertible senior notes [384](index=384&type=chunk)[385](index=385&type=chunk) - Foreign currency risk primarily stems from non-U.S. operating expenses, with a hedging program initiated in December 2022 to mitigate this exposure [386](index=386&type=chunk)[387](index=387&type=chunk) [Financial Statements and Supplementary Data](index=88&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for fiscal years 2020-2022, along with the independent auditor's report and detailed notes on accounting policies and financial instruments [Report of Independent Registered Public Accounting Firm](index=89&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued unqualified opinions on Confluent's financial statements and internal controls, highlighting Standalone Selling Price determination as a critical audit matter - PricewaterhouseCoopers LLP issued an **unqualified opinion** on both the financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022 [394](index=394&type=chunk) - A Critical Audit Matter was identified regarding management's judgment in determining the Standalone Selling Price (SSP) for performance obligations [402](index=402&type=chunk)[403](index=403&type=chunk) [Consolidated Financial Statements](index=92&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements show total assets of $2.34 billion, increased liabilities, and a net loss of $452.6 million in 2022, contributing to an accumulated deficit of $1.2 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $435,781 | $1,375,932 | | Marketable securities | $1,491,044 | $640,085 | | **Total Assets** | **$2,344,849** | **$2,342,729** | | Deferred revenue (current & non-current) | $322,829 | $246,477 | | Convertible senior notes, net | $1,084,500 | $1,080,701 | | **Total Liabilities** | **$1,575,372** | **$1,492,448** | | **Total Stockholders' Equity** | **$769,477** | **$850,281** | Consolidated Statement of Operations (in thousands) | Account | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Total revenue | $585,944 | $387,864 | $236,577 | | Gross profit | $383,529 | $250,572 | $161,101 | | Operating loss | ($462,674) | ($339,620) | ($233,175) | | Net loss | ($452,551) | ($342,801) | ($229,828) | | Net loss per share | ($1.62) | ($1.82) | ($2.21) | [Notes to Consolidated Financial Statements](index=99&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail revenue disaggregation, convertible senior notes, stock-based compensation, and subsequent events including the Immerok GmbH acquisition and a January 2023 workforce reduction Disaggregation of Revenue by Type (in thousands) | Revenue Type | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Confluent Platform - License | $76,019 | $69,183 | $49,043 | | Confluent Platform - PCS | $247,803 | $183,737 | $128,178 | | Confluent Cloud | $211,187 | $94,179 | $31,412 | | **Total Subscription Revenue** | **$535,009** | **$347,099** | **$208,633** | | Services Revenue | $50,935 | $40,765 | $27,944 | | **Total Revenue** | **$585,944** | **$387,864** | **$236,577** | Disaggregation of Revenue by Geography | Geography | FY 2022 % | FY 2021 % | FY 2020 % | | :--- | :--- | :--- | :--- | | United States | 62% | 64% | 66% | | International | 38% | 36% | 34% | - In January 2023, the company acquired Immerok GmbH for approximately **$54.9 million** in cash [574](index=574&type=chunk) - In January 2023, the company approved a restructuring plan, including an **8% reduction** of its global workforce, with estimated non-recurring charges of **$27 million to $31 million** [576](index=576&type=chunk) [Controls and Procedures](index=129&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022 [578](index=578&type=chunk) - Management's report on internal control over financial reporting concluded effectiveness as of December 31, 2022, a conclusion audited and concurred with by the independent auditor [579](index=579&type=chunk) Part III [Directors, Executive Officers, Compensation, and Governance](index=131&type=section&id=Items%2010-14) Information for Items 10-14, covering directors, executive officers, compensation, and governance, is incorporated by reference from the forthcoming 2023 Proxy Statement - Information on Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships, and Principal Accountant Fees and Services is incorporated by reference from the forthcoming 2023 Proxy Statement [587](index=587&type=chunk)[589](index=589&type=chunk)[590](index=590&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=132&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Annual Report on Form 10-K, including consolidated financial statements and an index of incorporated documents - This section contains the consolidated financial statements and a list of all exhibits filed with the 10-K report [593](index=593&type=chunk) [Form 10-K Summary](index=134&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates that no Form 10-K summary is provided - None [598](index=598&type=chunk)

Financial Data and Key Metrics Changes - Total revenue grew 41% to $169 million, with Confluent Cloud revenue increasing 102% to $68 million [85][99] - Non-GAAP operating margin improved by 20 percentage points, indicating a significant enhancement in profitability [85][96] - Net loss per share was negative $0.09, with free cash flow margin improving four percentage points to negative 18.3% [102][104] Business Line Data and Key Metrics Changes - Subscription revenue grew 44% to $155.3 million, accounting for 92% of total revenue [99] - Confluent Cloud represented over 70% of new ACV bookings in Q4, marking the fifth consecutive quarter where Cloud exceeded 50% of new ACV bookings [99][100] - The number of customers with $100,000 or more in ARR increased by 35%, totaling 991 customers [98] Market Data and Key Metrics Changes - Revenue from the U.S. grew 35% to $100.5 million, while revenue from outside the U.S. grew 50% to $68.2 million [101] - RPO for the fourth quarter grew 48% to $740.7 million, with current RPO estimated at approximately $456.2 million, up 43% [119] - The dollar-based net retention rate remained healthy, just under 130%, with hybrid NRR continuing to be the highest [120] Company Strategy and Development Direction - The company aims to dominate the $60 billion market, with a focus on maintaining R&D investment while streamlining costs [87][118] - A restructuring of the workforce was undertaken, optimizing for strategic priorities and high ROI business areas, including an 8% reduction in workforce [110][111] - The acquisition of Immerok aims to enhance stream processing capabilities, with plans to launch a Flink offering in Confluent Cloud later this year [114][115] Management's Comments on Operating Environment and Future Outlook - The macroeconomic environment has led to elongated deal cycles and increased budget scrutiny, impacting large deals and new business [76][109] - The company is confident in its ability to achieve approximately 30% revenue growth while accelerating its path to profitability by one year [104][125] - Management emphasized the importance of stream processing and its role in driving customer value and operational efficiency [80][81] Other Important Information - The company plans to hold Investor Day 2023 in New York City on June 13 [84] - The restructuring is aimed at preserving the ability to drive top-line growth while optimizing operational efficiencies [66][110] Q&A Session Summary Question: How is the sales execution affected by recent changes in leadership and workforce? - Management indicated that the primary issue is the macro environment rather than internal execution problems, with opportunities for improvement identified [136] Question: What patterns were observed in deal cycles across different segments? - The enterprise segment experienced the most pronounced impact from budget scrutiny, while the commercial segment remained stable [142] Question: What gives confidence in the revenue guidance despite macro challenges? - The current RPO provides about 60% visibility into total revenue for FY '23, which is higher than the previous year, along with a greater proportion of fully ramped sales reps [145]

Financial Data and Key Metrics Changes - Total revenue grew 48% year-over-year to $152 million [7] - Non-GAAP operating margin improved by 14 percentage points year-over-year [7][35] - RPO grew 72% to $663.5 million, with current RPO estimated at approximately $408.2 million, up 59% [41] - Subscription revenue grew 50% to $138.7 million, accounting for 91% of total revenue [41] Business Line Data and Key Metrics Changes - Confluent Cloud revenue increased 112% year-over-year to $57 million, representing 38% of total revenue compared to 26% a year ago [7][42] - Confluent platform revenue was $81.8 million, up 25% and accounted for 54% of total revenue [41] Market Data and Key Metrics Changes - Revenue from the US grew 44% to $95.1 million, while revenue from outside the US grew 56% to $56.6 million [45] - The company added 120 net new customers, ending the quarter with approximately 4,240 total customers, up 40% [46] Company Strategy and Development Direction - The company aims to drive durable and efficient growth, with a market opportunity of approximately $60 billion [28] - The focus is on converting open-source users and landing new customers through self-service on Confluent Cloud [28] - The introduction of Stream Designer and Stream Governance Advanced aims to enhance customer engagement and expand the addressable market [27][38] Management's Comments on Operating Environment and Future Outlook - Management noted that the demand for data streaming remains strong despite macroeconomic pressures [58] - The company raised its revenue and bottom line guidance for Q4 and FY 2022, reflecting confidence in its business model [53][55] - For FY 2023, the company expects revenue in the range of $760 million to $770 million, incorporating a negative impact from increased scrutiny on deal approvals [56] Other Important Information - The company ended Q3 with $1.94 billion in cash, cash equivalents, and marketable securities [52] - The company announced the appointment of Rey Perez as Chief Customer Officer [36] Q&A Session Summary Question: How is the shift from open-source DIY to Confluent Cloud being perceived by large Apache Kafka users? - Management noted that the total cost of ownership (TCO) of the cloud offering has become a significant part of the sales process, with many large tech customers recognizing the benefits of moving to Confluent Cloud [61][62] Question: Can you discuss the seasonality of Confluent Cloud revenue? - Management indicated that Q4 typically sees less aggressive deployment of new workloads as companies prepare for year-end, but they expect a sequential increase in revenue [65] Question: How has the consumption impact related to macroeconomic conditions affected the company? - Management stated that the mission-critical nature of their use cases has helped maintain strong net retention rates, despite economic pressures [69] Question: What percentage of the business is supporting operational use cases versus analytical use cases? - Management indicated that the vast majority of use cases are operational in nature, which contributes to the resilience of demand [73][76] Question: How does the shift to cloud impact the competitive landscape? - Management noted that the shift is making on-premise solutions less relevant, while emphasizing the importance of cloud partnerships [92][96]