Confluent(CFLT)2024-10-31 01:22Financial Data and Key Metrics - Subscription revenue grew 27% YoY to 130 million [6] - Non-GAAP operating margin expanded approximately 12 percentage points to 6.3% [6] - Total revenue grew 25% YoY to 1 billion revenue run rate [6] - Subscription gross margin reached a record high of 82.2%, up 210 basis points, while total gross margin also reached a record high of 79% [25] - Free cash flow margin was 3.7%, expanding 10 percentage points [25] - Net income per share was 110.1 million, accounting for 46% of subscription revenue [22] - Confluent Cloud revenue accounted for 54% of subscription revenue, up from 48% a year ago [22] - Revenue from DSP (Data Streaming Platform) continued to grow substantially faster than overall cloud revenue [24] - 19 of the top 20 cloud customers have adopted at least 1 DSP product, and 13 have adopted products across all 3 categories [24] Market Data and Key Metrics - Revenue from the U.S. grew 28% YoY to 97.8 million [24] - The company serves more than 40% of the Fortune 500, including 10 of the top 10 U.S. banks, 8 of the top 8 global carmakers, and 9 of the top 10 U.S. insurance companies [10] Company Strategy and Industry Competition - The company is entering its third wave of growth, focusing on becoming a complete data streaming platform, a one-stop shop for all real-time data needs [14] - The acquisition of WarpStream adds a third deployment mechanism (BYOC) to the portfolio, targeting high-volume, high-tech customers [13] - The company is leveraging its relationship with OpenAI and other AI providers to drive growth in the generative AI landscape [9] Management Commentary on Operating Environment and Future Outlook - Management highlighted the stabilization of consumption in the digital native customer cohort and the adoption of new use cases and DSP products by larger cloud customers [22][28] - The company expects to exit 2024 with positive non-GAAP operating margin and positive free cash flow margin for the full year [31] - The intersection of cloud, data, and AI is seen as a critical driver for companies to deliver differentiated products and services in the AI era [32] Other Important Information - The company hosted Current 2024, its largest industry event dedicated to data streaming, with over 4,200 participants from 1,200 companies [6] - The company launched the Confluent for Start-ups AI Accelerator program, providing early-stage AI companies with tools, mentorship, and product credits [8] - The company announced Investor Day 2025, to be held on March 6, 2025, in San Francisco [33] Q&A Session Summary Question: Digital Native Customer Confidence - Management noted stabilization in the digital native segment, with customers shifting focus from cost optimization to new use case implementation [35] Question: Flink Adoption and Use Cases - Flink adoption is ramping up, with early production use cases being implemented by both Confluent Cloud and Confluent Platform customers [37][38] Question: Go-to-Market Strategy - The company has made significant progress in broadening its reach to open-source Kafka users, targeting high-propensity accounts and focusing on product-led growth [41][42] Question: Gen AI Demand - Gen AI demand is showing up in customer conversations, with growth in AI providers and new use cases in the enterprise customer base [45][46] Question: WarpStream Opportunity - WarpStream is seen as a key opportunity to bring large digital native companies into the Confluent ecosystem, particularly those using open-source Kafka [48] Question: NRR and Cloud Growth - NRR downticked slightly to 117%, but cloud growth remains strong, driven by stabilization in digital native consumption and adoption of DSP products [50][51] Question: Federal Business Performance - Federal business performance was reasonable, with limited impact due to the absence of Confluent Cloud in that vertical [69] Question: AI Use Cases and Competitive Positioning - AI use cases are emerging in two primary areas: gathering context data for AI and operationalizing background tasks using Flink [72][73] Question: Margin Progression and Product Innovation - The company expects to maintain efficient growth and profitability, with DSP products contributing to margin expansion as they scale [75][76] Question: Go-to-Market Improvements - The company has made aggressive adjustments to its go-to-market strategy, with a focus on consumption-based models and DSP product adoption [79][80] Question: Win Rates and Competition - Win rates have increased, particularly against smaller start-ups, with overall win rates well above 90% [82] Question: Net New ARR and WarpStream Adoption - Net new ARR for Confluent Cloud was strong, even excluding a one-time revenue benefit, driven by stabilization in digital native consumption and DSP adoption [84] - WarpStream adoption is expected to grow, including potential adoption by Confluent Platform customers moving away from on-prem deployments [86] Question: Gross Margins and DSP Impact - Gross margins remain strong, with DSP products expected to contribute positively to margins as they scale [88][89] Question: Digital Native Demand Recovery - Recovery in demand from digital native customers is driven by both project rollovers and the company's go-to-market transformation [95][96] Question: Financial Services Strength - Strength in financial services is driven by continued investment in real-time data platforms, with no signs of slowdown [99][100] Question: New Customer Expansion - New customer expansion is expected to follow a land-and-expand model, with a focus on progressing customers to higher ARR tiers [101][102]