Core Insights - Data streaming technology is increasingly vital for businesses, enhancing digital experiences and real-time data access [1][7] - Confluent is a leading provider in this space, with a significant addressable market valued at $100 billion, which is expected to grow as data streaming becomes integral to the AI revolution [2][19] Company Performance - Confluent reported $260.9 million in subscription revenue for Q1 2025, exceeding management's guidance and reflecting a 26% year-over-year increase [11] - The company reduced its net loss by 27% to $67.5 million on a GAAP basis, while achieving a non-GAAP profit of $28.9 million, translating to $0.08 earnings per share [13] - Despite strong performance, Confluent lowered its full-year revenue forecast from $1.12 billion to $1.11 billion due to macroeconomic challenges [14] Market Sentiment - Wall Street analysts are generally bullish on Confluent, with 20 out of 34 assigning the highest buy rating, and an average price target of $28.60, indicating a potential upside of 44% [15][16] - The stock has seen a 79% decline from its all-time high in 2021, leading to a more attractive price-to-sales (P/S) ratio of 6.3, which is among the lowest in its public history [17] Industry Trends - The shift from physical servers to centralized cloud data centers is driving the data streaming revolution, with companies like Walmart leveraging Confluent's technology for real-time inventory management [8][9] - Data streaming is essential for AI applications, enabling businesses to create custom solutions by integrating with models from developers like OpenAI [9][10]

Core Viewpoint - Confluent, Inc. (NASDAQ: CFLT) reported strong year-over-year revenue growth and improved bottom line performance in its Q1 earnings, but the stock has declined by 19% since the earnings report due to weak demand from larger customers [1] Group 1: Financial Performance - The company demonstrated strong year-over-year revenue growth in its Q1 earnings report [1] - There was an improvement in the bottom line performance compared to previous periods [1] Group 2: Market Reaction - Despite the positive earnings report, Confluent's stock price has decreased by 19% following the announcement [1] - The decline in stock price is attributed to weak demand from larger customers [1]

Group 1 - The majority of small and mid-cap software companies have reported positive earnings surprises during the Q1 earnings season, which has helped mitigate volatility in the market [1] - The volatility in the market began with the onset of Trump's new policies, impacting the technology sector [1] - Gary Alexander has extensive experience in covering technology companies and has been a contributor to Seeking Alpha since 2017, providing insights into industry trends [1]

Core Viewpoint - Confluent's stock has experienced significant declines following its first-quarter earnings report, primarily due to disappointing guidance for future growth despite positive revenue and income figures [1][2][3][4]. Financial Performance - Confluent reported double-digit percentage gains in both revenue and non-GAAP net income, exceeding average analyst expectations [3]. - The company's guidance for the year indicates lower growth in critical areas, particularly subscription revenue, which has raised concerns among investors [4]. Analyst Reactions - Following the earnings report, several analysts reduced their price targets for Confluent, with Needham's Mike Cikos lowering his target from $40 to $26 while maintaining a buy recommendation [5]. - The overall sentiment among analysts appears to be cautious, reflecting concerns over the company's growth trajectory [5]. Market Sentiment - The market reacted negatively to Confluent's earnings report, leading to a significant sell-off despite the company posting strong trailing results [2][3]. - There is a perception that Confluent may be oversold, presenting a potential opportunity for investors amid the current share price weakness [6].

Core Viewpoint - Confluent's stock is experiencing a significant decline despite reporting strong quarterly results, primarily due to disappointing forward guidance from management [1][2]. Financial Performance - Confluent reported Q1 sales of $271.1 million, exceeding Wall Street's expectations of $264.39 million, and adjusted earnings per share of $0.08, surpassing the estimate of $0.07 [3]. - The company's revenue grew 24.8% year over year, with subscription revenue increasing by 26% to $261 million, and Confluent Cloud revenue rising 34% year over year to $143 million [4]. - Adjusted earnings per share increased by 60% year over year in the quarter [4]. Growth Outlook - For Q2, Confluent expects subscription sales to be between $267 million and $268 million, indicating a growth rate of approximately 19% at the midpoint [5]. - The full-year subscription revenue projection is between $1.1 billion and $1.11 billion, reflecting an annual growth rate of 19.5% at the midpoint [6]. - The company attributes its softer growth outlook to uncertainties regarding spending from large customers, raising concerns among investors about potential macroeconomic headwinds affecting expansion [6].

Company Performance - Confluent reported quarterly earnings of $0.08 per share, exceeding the Zacks Consensus Estimate of $0.07 per share, and up from $0.05 per share a year ago, representing an earnings surprise of 14.29% [1] - The company achieved revenues of $271.12 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 2.86%, and an increase from $217.24 million year-over-year [2] - Over the last four quarters, Confluent has consistently surpassed consensus EPS and revenue estimates [2] Stock Outlook - Confluent shares have declined approximately 14% since the beginning of the year, compared to a 5.5% decline in the S&P 500 [3] - The company's current Zacks Rank is 3 (Hold), indicating expected performance in line with the market in the near future [6] - The consensus EPS estimate for the upcoming quarter is $0.08 on revenues of $277.28 million, and for the current fiscal year, it is $0.35 on revenues of $1.16 billion [7] Industry Context - The Internet - Software industry, to which Confluent belongs, is currently ranked in the bottom 44% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor sentiment [5]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-40526 CONFLUENT, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 47-1824387 (State or othe ...

Financial Data and Key Metrics Changes - Q1 subscription revenue grew 26% to $261 million, exceeding guidance and representing 96% of total revenue [23] - Confluent Cloud revenue increased 34% to $143 million, accounting for 55% of subscription revenue [23] - Non-GAAP operating margin improved by 6 percentage points to 4% [4][26] - Subscription gross margin increased by 100 basis points to 81.7% [25] - Adjusted free cash flow margin was 1.8%, impacted by a compensation change [26] Business Line Data and Key Metrics Changes - Confluent Platform revenue reached a record $118.2 million, with growth accelerating to 18% [23] - The number of customers increased to approximately 6,140, with a net addition of 340 customers, the highest since Q1 2022 [27] - The count of $1 million plus ARR customers grew to 210, marking the best quarter for net additions in this cohort [28] Market Data and Key Metrics Changes - Revenue from the U.S. grew 23% to $156.4 million, while revenue from outside the U.S. grew 28% to $114.7 million [24] - The gross retention rate remained above 90%, demonstrating the mission-critical nature of the data streaming platform [6][28] Company Strategy and Development Direction - The company focuses on enabling customers to build next-generation applications efficiently, particularly in the age of AI [4] - Confluent aims to capture the $100 billion addressable market opportunity by leveraging Apache Kafka as a foundational technology [6] - The strategy includes a hybrid business model that allows flexibility in deployment across on-prem, cloud, and hybrid environments [12] Management's Comments on Operating Environment and Future Outlook - Management noted a slowdown in new use case additions among larger customers, while smaller customers showed stable consumption [29] - The company expects subscription revenue for Q2 2025 to be in the range of $267 million to $268 million, representing approximately 19% growth [28] - For fiscal year 2025, subscription revenue is expected to be between $1.1 billion and $1.11 billion, indicating growth of approximately 19% to 20% [29] Other Important Information - The company was named Google Partner of the Year for the sixth time, reflecting strong partnerships with leading cloud service providers [21] - Ryan McBann was promoted to Chief Revenue Officer, tasked with leading global field strategy [20] Q&A Session Summary Question: What is the status of existing use cases and consumption run rates? - Management observed lower consumption in larger customers but stable consumption in smaller ones, indicating a cycle of optimization and growth [35][36] Question: How does the company view the future of Confluent regarding diskless Kafka? - Management confirmed that both cloud and WarpStream are utilizing intelligent storage solutions, optimizing cost and performance [42][44] Question: Can you quantify the growth of DSP offerings like Flink and TableFlow? - DSP offerings are significantly outgrowing the core cloud business, with early traction noted in both cloud and Confluent Platform [48][50] Question: How does the company view customer additions versus net revenue retention (NRR)? - The company expects NRR to remain stable around 17%, supported by a strong gross retention rate [58] Question: What is the outlook for the Confluent Platform (CP) performance? - CP showed strong performance with an 18% growth, driven by multi-year deals and a balanced customer mix [99]

Financial Data and Key Metrics Changes - Q1 subscription revenue grew 26% to $261 million, exceeding guidance and representing 96% of total revenue [25] - Confluent Cloud revenue increased 34% to $143 million, accounting for 55% of subscription revenue [25] - Non-GAAP operating margin improved by 6 percentage points to 4% [6] - Subscription gross margin increased by 100 basis points to 81.7% [27] - Operating margin was 4.3%, exceeding guidance of approximately 3% [28] - Adjusted free cash flow margin was 1.8%, impacted by a non-recurring compensation change [28] Business Line Data and Key Metrics Changes - Confluent Platform revenue reached a record $118.2 million, with growth accelerating to 18% [25] - The company added 340 new customers in Q1, the highest net addition in three years [9] - The number of customers with $1 million plus ARR grew to 210, with a net addition of 16 customers, the best quarter for this cohort [30] Market Data and Key Metrics Changes - Revenue from the U.S. grew 23% to $156.4 million, while revenue from outside the U.S. grew 28% to $114.7 million [26] - The gross retention rate remained above 90%, demonstrating the mission-critical nature of the platform [8] Company Strategy and Development Direction - The company focuses on enabling customers to build next-generation applications efficiently, particularly in the age of AI [6] - Confluent aims to capture the $100 billion plus addressable market opportunity by leveraging Apache Kafka as a foundational technology [8] - The strategy includes a hybrid business model that allows flexibility in deployment across on-prem, cloud, and hybrid environments [14] Management's Comments on Operating Environment and Future Outlook - Management noted a slowdown in new use case additions among larger customers, while smaller customers showed stable consumption [31] - The company expects subscription revenue for Q2 2025 to be in the range of $267 million to $268 million, representing approximately 19% growth [30] - For fiscal year 2025, subscription revenue is expected to be between $1.1 billion and $1.11 billion, indicating growth of approximately 19% to 20% [31] Other Important Information - The company was named a Google Partner of the Year for the sixth time, reflecting strong partnerships with leading cloud service providers [22] - Ryan McBann was promoted to Chief Revenue Officer, leading global field strategy [21] Q&A Session Summary Question: What is the consumption run rate for existing use cases? - Management observed lower consumption in larger customers but stable consumption in smaller ones, indicating a cycle of optimization and growth [37][39] Question: How is the open-source community responding to diskless Kafka? - Management confirmed that they are exploring diskless solutions and optimizing storage use across their platforms [43][45] Question: Can you quantify the growth of DSP offerings? - DSP offerings are significantly outgrowing the core cloud business, with strong early adoption of Flink and TableFlow [51][52] Question: How do you view the relationship between customer adds and NRR? - The company expects NRR to remain stable around 17%, supported by a strong gross retention rate [60] Question: What is the outlook for AI-related demand? - Management sees strong demand for AI applications, particularly in real-time data processing, which is becoming increasingly important for enterprises [66][68] Question: How is the company positioned for potential optimization activities? - Management believes that customers have already optimized their cloud usage significantly, leading to a tighter range of outcomes compared to previous cycles [82][84]

Financial Performance Highlights - Q1 2025 subscription revenue reached $260.9 million, a 26% year-over-year increase[8] - Q1 2025 cloud revenue was $142.7 million, representing a 34% year-over-year growth[8] - The company achieved a non-GAAP operating margin of 4.3% in Q1 2025, a 6 percentage point increase year-over-year[8] - Adjusted free cash flow margin for Q1 2025 was 1.8%, up 16 percentage points year-over-year[8] - The net retention rate was 117%[8] Customer Growth - Confluent has been driving business success at every stage of the customer journey[29] - The number of customers with at least $100,000 in ARR increased[58] - The number of customers with at least $1 million in ARR reached 210[59] Market Opportunity and Strategy - Confluent estimates a total addressable market (TAM) exceeding $100 billion[44, 69] - The company is focused on managing net dilution, targeting a long-term goal of below 2%[67] - Confluent is positioned for growth with its complete data streaming platform[69]