Confluent(CFLT) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Subscription revenue grew 27% to $224.7 million, exceeding guidance and representing 96% of total revenue [16][4] - Confluent Cloud revenue increased 40% to$ 117.4 million, accounting for 52% of subscription revenue compared to 47% in the previous year [17][4] - Non-GAAP operating margin improved by approximately 10 percentage points, reaching 0.6% [18][4] - Free cash flow margin turned positive at 1.2%, improving by approximately 20 percentage points [18][4] - Total customer count reached approximately 5,440, with a sequential increase of 320 customers, the largest in two years [18][4] Business Line Data and Key Metrics Changes - Confluent Platform revenue grew 16% to $107.3 million, accounting for 48% of subscription revenue [16][4] - Subscription gross margin was 80.8%, up 170 basis points, driven by strong performance in the Confluent platform and improving unit economics of Confluent Cloud [17][18] Market Data and Key Metrics Changes - Revenue from the US grew 26% to$ 143.2 million, while revenue from outside the US grew 22% to $91.7 million [17][18] - Net Revenue Retention (NRR) for Q2 was 118%, below the target range of 120% to 125% due to consumption volatility among large digital-native customers [19][18] Company Strategy and Development Direction - The company is focused on a consumption-oriented business model, aiming to attract more customers who can drive value from the data streaming platform [15][5] - The strategic position is reinforced by innovations in the data streaming platform, enabling the capture of the full lifecycle of data in motion [6][5] - The rise of GenAI is seen as a significant opportunity, with data streaming playing a critical role in fueling AI applications [11][5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth prospects despite a volatile macro environment, emphasizing the importance of data streaming technology [4][5] - The company anticipates continued adoption of its data streaming platform, with expectations for substantial growth in the data streaming market [22][5] - Guidance for Q3 2024 expects subscription revenue in the range of$ 233 million to $234 million, representing growth of approximately 23% to 24% [21][22] Other Important Information - The company has made significant strides in its partner ecosystem, with over 40 technology and partner-built integrations, enhancing its market reach [10][5] - The company was recognized as Partners of the Year by both Google and Microsoft, highlighting strong relationships with cloud partners [10][5] Q&A Session Summary Question: Customer logo growth and expansion potential - Management noted that the increase in customer logos implies potential for faster expansion as they advance with the platform [25][26] Question: Trends in digital-native customer behavior - Management indicated that while there was some slowness in June, they observed stabilization in July, with a focus on cost efficiencies among digital-native customers [27][28] Question: Go-to-market transformation and workload quality - Management emphasized the importance of ensuring quality workloads while increasing customer acquisition, focusing on high propensity accounts [30][26] Question: International growth and sales attrition - Management clarified that the growth rates between international and US markets are often influenced by the timing of large deals, with no significant trends in sales attrition [52][51] Question: Impact of pricing changes on revenue - Management confirmed that pricing changes were factored into guidance, with expectations for a net positive impact over time [83][82]