Confluent(CFLT) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Total revenue for Q4 2023 grew 26% YoY to $213 2 million, with subscription revenue growing 31% to$ 202 8 million [9][47] - Confluent Cloud revenue reached $100 million for the first time, growing 46% YoY, and now represents 47% of total revenue [9][19] - Non-GAAP operating margin turned positive for the first time at 5 3%, improving 27 percentage points YoY [9][20] - Full-year 2023 revenue grew 33% to$ 777 million, with Confluent Cloud revenue growing 65% to $348 8 million [17] - Non-GAAP operating margin for FY2023 improved 23 percentage points to negative 7 4%, with Q4 achieving the first positive margin [17] - Free cash flow margin turned positive in Q4, improving 21 percentage points to 3 2% [58] Business Line Data and Key Metrics - Confluent Platform revenue grew 18% YoY to$ 102 8 million, representing 48% of total revenue, driven by demand in regulated industries [47] - Confluent Cloud revenue grew 46% YoY to $100 million, exceeding guidance of$ 97 5 million [19] - Total customer count grew 9% YoY to approximately 4,960, with customers generating $100k+ in ARR growing 21% to 1,229 and$ 1M+ ARR customers growing 24% to 158 [49] - Net Revenue Retention (NRR) was slightly above 125%, exceeding the mid-term target threshold [59] Market Data and Key Metrics - Revenue from the US grew 27% YoY to $127 6 million, while international revenue grew 25% to$ 85 5 million [57] - Strong growth in India, particularly in the digital native segment, with one e-commerce brand growing its customer base by 100% in the last 18 months [39] Company Strategy and Industry Competition - The company is transitioning to a fully consumption-oriented go-to-market model, focusing on driving incremental consumption and new logo acquisition [6][10] - Confluent is positioning itself as a leader in the $60 billion data streaming platform market, with Forrester recognizing it as a leader in streaming data platforms and cloud data pipelines [11] - The company is investing in Flink, which is seen as the emerging de facto standard in stream processing, with nearly 1 million unique downloads in 2023 [1][41] - Confluent is leveraging its leadership in Kafka to capture the emerging stream processing market, similar to how databases combined storage and processing [68] Management Commentary on Operating Environment and Future Outlook - Management is confident in the company's ability to capture the$ 60 billion data streaming platform opportunity, driven by cloud migration and generative AI trends [60] - The company expects to achieve breakeven non-GAAP operating margin and free cash flow margin in 2024, with total revenue growth of 22% [61][62] - Confluent is focused on making its platform easier to adopt, reducing friction for customers, and driving higher velocity in customer acquisition [133] - The company sees generative AI as a significant growth driver, with partnerships with OpenAI, Anthropic, and Pinecone validating the strategic role of data streaming in AI applications [3][69][71] Other Important Information - The company acquired Notable in Q4 2023, which did not have a material financial impact but added a team focused on no-code data visualization [22] - Confluent expects Confluent Cloud revenue to grow approximately 43% in Q1 2024 to $105 million [53] - The company plans to transition fully to subscription revenue guidance starting in Q3 2024 [52] Q&A Session Summary Question: What drove the partnerships with OpenAI, Anthropic, and Pinecone? - These partnerships are driven by the need for data streaming in generative AI applications, particularly in integrating proprietary data with large language models [56][69][90] Question: How is the sales team adapting to the consumption-oriented model? - The sales team has responded positively to the new model, with no significant attrition and early signs of success in driving consumption [89][98] Question: What is the importance of Flink in Confluent's platform? - Flink is critical as it generalizes both streaming and batch processing, making it easier for developers to handle real-time data processing [151][156] Question: How is the company addressing the complexity of its technology portfolio? - Confluent is simplifying the adoption process by making its cloud services easy to use, reducing the operational complexity for customers [156] Question: What are the expectations for Flink's revenue contribution? - Material revenue contributions from Flink are expected in fiscal year 2025, with early adoption and application development starting in 2024 [160]