Good day, and welcome to the MongoDB Third Quarter Fiscal 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Denyeau. Please go ahead, sir.

Thank you, Brian. Good afternoon, and thank you for joining us today to review MongoDB's third quarter fiscal 2018 financial results, which we announced in our press release issued after the close of market today. Joining me on the call today are Dev Ittycheria, CEO of MongoDB; and Michael Gordon, MongoDB's CFO. During this call, we may make statements related to our business that are forward-looking [indiscernible] securities laws and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our financial results, trends and guidance for the fourth fiscal quarter and full fiscal year 2018, industry and market trends, our go-to-market and growth strategies, our market opportunity and ability to expand our leadership position, our ability to maintain and up-sell existing customers, our ability to acquire new customers and the anticipated benefit of our platform. The words anticipate, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements represent our views only as of today and should not be reflected upon as representing our views upon any subsequent date. We do not have plans to update these statements except as required by law. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in the final prospectus related to our initial public offering and/or other periodic filings with the SEC. These documents are available in the Investor Relations section of our website at www.mongodb.com. A replay of this call will also be available there for a limited time. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release and the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. And with that, I would like to turn the call over to Dev.

Great. Thank you, Brian. I'd like to thank everyone joining us today on our first quarterly earnings call as a public company. MongoDB's successful IPO in October was a major milestone for us and for our industry. The database market is one of the world's largest software markets, and MongoDB was actually the first database company to go public in over 20 years. Our disruptive technology, unique business model, and proven track record with customers has enabled us to deliver rapid growth at significant scale. In the third quarter, we generated revenue of $41.5 million, representing a 58% year-over-year growth rate at an annualized revenue run rate of over $160 million. We had over 4,900 customers at the end of the third quarter, which is up 88% compared to a year ago. Our success to-date clearly demonstrates that MongoDB is the leading modern general-purpose database. Before I review some of the operational highlights of our third quarter, I want to take a few minutes to reiterate the investment thesis we presented during the IPO roadshow since this is our first earnings call as a public company. MongoDB was founded by developers who were tired of working around the constraints of relational database. They started with a clean sheet of paper and built a database they always wanted, a solution by developers, for developers, to allow them to more easily and efficiently build mission-critical applications. As software becomes more strategic, organizations are choosing technologies that drive developer productivity. In fact, the increasing importance of developers is giving them disproportionate influence in how technology is evaluated, adopted and ultimately monetized. And because a database is at the heart of every software application, selecting a database has become a highly strategic decision. But most applications today are built on database technologies that were…

Thanks, Dev. As mentioned, we're very pleased with our third quarter results. Before reviewing the details of our financial performance and our outlook for the remainder of the year, I'd like to provide an overview of our financial model, given this is our first call as a public company. MongoDB primarily generates revenue from subscriptions, which typically run at 90% or more of our total revenue. Subscription revenues come from subscription license packages, primarily our Enterprise Advanced offering, as well as our database-as-a-service offering, MongoDB Atlas. We also have professional services revenue, which is tied to service offerings designed to increase our customers' success, retention and expansion. Enterprise Advanced is priced on a per-server basis and typically have 12-month contracts. We invoice customers annually in advance and generally recognize license revenue ratably over the term of the contract. More recently, we've seen a growing number of customers making multiple [ agreements ] as MongoDB has become increasingly strategic. But even for these agreements, we typically invoice these customers annually. Pricing and invoicing for Enterprise Advanced is the same whether a customer chooses to deploy it on-premises, in the cloud or in a hybrid environment. As Dev mentioned, we have a land-and-expand model. We drive growth by expanding our subscriptions within existing customers and acquiring new customers who are just starting to use our platform. We launched Atlas about 18 months ago in the middle of our fiscal 2017. Atlas is currently based on the feature set included in our Community Server and provides us the way to monetize our freemium offering directly. It is an elastic operating and is priced on a consumption metered basis, consistent with typical cloud offerings. Now let me turn to our third quarter results. Total revenue in the third quarter was $41.5 million, up 58%…

Thanks, Michael. So as you've heard, we got off to a great start in our first quarter as a public company. We further demonstrated our position as the leading modern general-purpose database in a massive $45 billion market. We continue to see a positive response from customers and continue to generate best-in-class growth. I joined MongoDB as CEO over 3 years ago because I believe there was a unique opportunity to build a special category-defining software company. 3 years later, it's clear we have a huge market, strong product market fit and a long runway for growth. Finally, I'd like to take a moment to thank all our employees. Through their hard work and dedication, we built an incredible business and culture. I couldn't be prouder of what we collectively accomplished, and I know the best is still yet to come. With that, we'd like to open it up to questions. Operator?

[Operator Instructions] And we'll now take our first question from Richard Davis with Canaccord.

This is actually DJ Hynes on the call for Richard. I want to ask you about new business generation. What percent of new business is coming from incremental workloads versus legacy migrations? And I guess, how do you see that trending over time?

Yes. And what we have said in the roadshow during the IPO was that we saw about 30% of our business coming from legacy migrations. Last quarter was again consistent around that figure. So about a little less than 1/3 of our business is migrations, and the rest is around new workloads that customers are deploying.

Okay. And you think that, that stays pretty steady for the foreseeable future?

Yes, it's not necessarily a metric we track explicitly or manage our business to because, obviously, we're -- we see such a big opportunity in front of us. But we don't see -- there may be some variability based on some large deals, but we definitely see that to be generally in line with how the business will come in the future.

Yes, makes sense. And then one follow up on Atlas. I mean, from all of the kind of qualitative commentary, it sounds like it was another good quarter for Atlas with the customer adds. I'm curious, some of the trends in the metrics that we had been seeing that were caused by Atlas, right, with subscription revenue per customer trending down and gross margins trending down, kind of reversed in the quarter. So wonder if you could give us some color on what drove kind of the reversal on those trends.

Yes. So in general, we've seen strong performance really across the board. It was a strong quarter for both new customer adds as well as expansion within existing customers. To your point, certainly, it was a particularly strong quarter for Atlas in particular as customers -- we saw a growing number of customers embracing our as-a-service model. I think that we've seen both new customer adds, in terms of the raw customer count of Atlas, growing, but we're also seeing, even though it's early days, very attractive underlying cohort expansion within Atlas. We're seeing actually even greater land-and-expand characteristics than the already strong behavior that we see in our annual subscription business. So we're benefiting from that as well. And then, I would also say we're seeing a number of customers who are already Enterprise Advanced customers expanding their relationship with us and adding Atlas and managed offering for additional workloads of theirs.

And we'll now take our next question from Sanjit Singh with Morgan Stanley.

I had a couple of questions for Dev and then maybe a couple for Michael. Since it's the first quarter Dev, maybe you can give us a sense of, historically, what has been sort of the use cases/workloads that have driven the business or accounted for the big chunk of revenue historically and the types of use cases that are coming on board today and where -- what are some of the use cases that could come on board in the future? If you can sort of -- any thoughts on where the growth is coming from would be helpful.

Yes. So we typically see 3 types of applications in most enterprises. We see systems of record, which could be your HRIS, your payroll, your general ledger and maybe custom apps around your billing systems and so forth. We see systems of engagement that tend to be typically how customers engage with their users, their customers, their partners. And they tend to be, in many cases, revenue-generating applications. And then we see systems of -- this new genre of applications called systems intelligence where people are building machine learning and AI-based applications. And that obviously is still a very small footprint today, but an exciting new area. Historically, we engage with customers around system engagement, first, around a new workload. The obvious reason, one, is system engagement applications tend to have a high rate and pace of change, people are adding new features to respond to new market opportunities, to respond to new competitive threats. So like e-commerce systems and so forth, mobile applications, et cetera. And then as they get used to -- and that's typically for a new workload because, obviously, by definition, it's less risky to start with a new workload. And then as they get more and more comfort and experience with MongoDB, we start seeing them deploy us for systems of record applications. Typically, those tend to be migrations of existing workloads. So it could be a trading app on Wall Street, it could be an order booking application of how people capture orders, it could be something in that genre. And they tend to be migrations of existing use cases. And I would say there's been no real change, we still see that same pattern happening. And the more we penetrate a particular account, and that's why our model is a land-and-expand expand model, as we continue to further penetrate our position in a particular account, that it tends to be a more -- a higher predisposition to start migrating existing applications.

That's super helpful. Just a quick follow-up there. Is there anything from a technical architecture perspective where you can't address a use case today, but may address in the future? Is there any sort of -- is there sort of a road map gap today that you're planning to fill that with opening up even more use cases down the line?

Yes. I mean, no, we definitely believe that we are and as you -- there's a wide breadth of use cases, wide breadth of customers, wide breadth of industries that our customers are part of that, so we feel like we're a general-purpose database today. But clearly, there are some, maybe some unique set of features and capabilities that we don't have today that we can address. But the way our product planning process goes is we see that demand coming in and then we prioritize where we think we're going to make the biggest impact and we try and bridge that gap as quickly as possible. And in some cases -- and we tend to come out with a major release every year, so our rate and pace of innovation is quite high.

And then, Michael, maybe one for me and it goes back to Atlas again. I appreciate the heads up on the gross margin. Can you just sort of review -- as Atlas is 8% of revenue today, but as that increases as a percentage of your overall revenue mix, in terms of the impact on metrics, such as billings, revenue and cash flow, could you review what the impact could be there? And again, any sort of comment on what type of renewal rates you guys have been seeing now that it's been out for 18 months?

Yes, sure. So Atlas, just to ground everyone, the main difference, while it's still a subscription product, is it's billed monthly based on usage as opposed to sort of flat fee for a term license, just to ground everyone in that. So from a revenue recognition standpoint, it's fairly straightforward, it's consumption based, it's based on the actual usage as opposed to a ratable revenue recognition treatment. But assuming the same amount of usage over a period, the revenue recognition would look pretty similar. Cash flow is a little bit different. While it is more monthly in arrears, it's less of a deferred revenue treatment. It doesn't generate meaningful deferred revenue as opposed to a customer who's paying annually in advance for a subscription. And then billings, which is not a metric that we use internally, but I know externally is valuable, would have that knock-on effect of it not flowing to the deferred revenue in the way that we just discussed. On the renewal rates, we're seeing very strong cohort behavior for Atlas customers. It is, yes, still early days, so we don't want to give specific numbers, and we want to get some more seasoning in the cohorts. But we are seeing a much broader -- much higher net expansion out of a cohort of customers, and that's a lot of what's -- that's one of the many factors that's contributing to the strong growth of Atlas.

And we'll now take our next question from Heather Bellini with Goldman Sachs.

Welcome to the public company realm. Wanted to just talk a little bit...

Thanks, Heather.

You talked a little bit about AWS and the nice comments that Andy Jassy made. But obviously, you also run on, as you mentioned, GCP and Azure. Just wondering if you could share with us maybe some of that cohort analysis you're doing or just kind of where you're seeing the greatest adoption of Atlas and kind of -- I know you need to love all of the platforms equally, but kind of anything that would stand out in terms of just customer traction and where maybe the friction might be the least to adoption of Atlas.

So there's no question that the greatest amount of adoption is on AWS, just as a function of the fact that AWS is orders of magnitude bigger than Azure or GCP. We are seeing significant uptick in both of those 2 other cloud platforms as well. I would say I think GCP is a little bit ahead of Azure today, but it's still very early days. But the nice thing is that we're seeing customers transact and run Atlas on those cloud platforms, so they're really buying into the run anywhere strategy, and that gives customers comfort. And then I think as we introduce these features, today we have Cross Region Replication, in the future as part of our road map will be cross-cloud replication. You could have workloads spanning multiple cloud providers as well. But right now, the bulk of the business is coming and being provisioned on AWS.

And we'll now take our next question from Brad Reback with Stifel.

Dev, as you look down the road a couple of years, what percent of revenue you think Atlas represent?

Yes, I mean, it's really hard to sit here and give you any kind of definitive number. We are very bullish on the Atlas opportunity for a number of reasons. One is just the appeal of this as-a-service model. These customers want to consume infrastructure-as-a-service. Two, the product market fit of Atlas has been really strong. Obviously, we wouldn't be seeing these kind of growth rates if it wasn't so strong. And three, it really gives customers optionality, optionality in terms of running MongoDB on any environment and optionality on kind of any consumption model. There may be certain application of workloads that people still want to manage directly and there may be sort of application of workloads that people want to deploy as-a-service, and we are seeing that actually today happen pretty quickly. So I think this is not about just only betting or investing in one offering. We continue to innovate aggressively on our Enterprise Advanced product portfolio. And in fact, many of the features we've built on Atlas will continue to be embedded back into Ops Manager to enable customers to do more sophisticated things when they want to run private clouds. But this is really all about really offering customers choice on environment and consumption model.

Great. Maybe one quick follow-up for Michael. If Atlas grows faster than potentially expected, given the cash flow dynamic of the product, does that -- does it matter that it might push out getting to cash flow neutral in the future?

Yes. I mean, it obviously depends on the magnitude of how much it were to grow faster. There certainly are some underlying cash flow dynamics. I think, in the long run, we have enough levers that we're paying a lot of attention to the relative dynamics and the relative performance of the businesses. We're certainly making investments across-the-board in sales and marketing to grow the top line, in R&D for the product road map. All of that is in the context of a more than fully funded business plan. And so we think about everything in the context of our steady progression towards cash flow profitability, including developments as they unfold with market uptake, whether it be of Atlas or anything else.

And we'll now take our next question from Raimo Lenschow with Barclays.

It's [indiscernible] on for Raimo. So just staying on Atlas, one thing I find interesting from your comments was that Atlas you guys are seeing adoption not just in terms of landing new customers, but also customers who are -- who have been using your Enterprise Advanced offering have been using Atlas, which resonates to the hybrid cloud sort of like negative we have seen from other companies in the space. So just curious, actually, if you can give more color as to what sort of like workload or use cases you have seen from customers who are already using Mongo on-prem while they use Atlas. Is it just sort of like newborn in the cloud application workload? Is it actually they are migrating some workloads on-prem to the cloud and using Atlas along those lines? So just any color there will be helpful.

Sure. So -- and typically, in the Enterprise Advanced product, we typically see more production environments and some test environments. But mainly they are mission-critical production environments that people are transacting with us to help them run and manage those environments using our proprietary capabilities. When it comes to Atlas, Atlas is basically the monetization of our Community Server. So what we saw some of the early customers do is just move development workloads, people are doing prototyping, skunk works, et cetera. We have many customers, even large customers say they don't want to have development workloads on-prem anymore because there's such a high degree of variability and usage of the compute platform that they want to get the benefit of an elastic platform like Atlas. But then we've seen, as people have gotten comfort with Atlas that we've seen customers transact as high as 6-figure kind of commitments where people are really moving important, mission-critical workloads to Atlas. So I think it really depends on the customer and what their issues or constraints are. Some customers are constrained by just their own operation support capabilities. Some customers are constrained by just provisioning enough compute capacity in their own data centers. Some customers want to move very, very quickly from a time-to-market point of view. It really depends on what's happening to that customer and what's driving the decision to move to Atlas. So the nice thing is that we're seeing broad adoption of Atlas and broad adoption of Enterprise Advanced. And again, the benefit to the development organization is they don't want to develop the application differently whether they run it on-prem or in the cloud. So in some ways, they're future-proofing that application by betting on MongoDB.

[Operator Instructions] And we'll now take our next question from Pat Walravens with JMP Securities.

This is Mathew Spencer on for Pat. Would you mind talking about some of the investments you're making in the sales force, specifically how are new sales reps ramping? And also, could you remind us of what your coverage model looks like and maybe where you're hiring most aggressively?

Sure. So we have put a lot of thought and structure around our go-to-market model. As we mentioned, in our prepared remarks, there tends to be 3 channels. There's the -- our direct sales force, there's a self-service business and there's our partner organization. In terms of the direct sales force, we are hiring in all markets, North America, Europe and in the Pac Rim. And candidly, it's a lot of it's -- because the market is so large, it's really gated by the leadership we put in place because we just don't want to hire a rep in a market without both the coverage of enough sales leadership to give them the support as well as technical resources to support them in the sales process. As you can imagine, we tend to focus on where we see the biggest demand set. So like in the North America, we tend to focus on NFL cities. But even today, we don't have coverage for every NFL city, and we continue to try to expand our coverage over time. The same is happening in EMEA. We've historically had a very larger presence in the U.K, but a limited coverage in the rest of the continent. Now we've hired some new sales leaders who are helping us grow our footprint in places like France and Southern Europe, in places like Spain and Italy as well as Germany, which is a massive market onto itself. And then we also hired people in the Benelux area, and we're looking to add more people in the Nordics. So again, we see -- this as a truly business that's not constrained by market, so it's really, one, finding the right quality of people and making sure that we have the sales leadership in place to support them in the ramping process as well as the technical resources to help them prosecute a deal.

And with no further questions in the queue at this time, I would like to turn the conference back over to Mr. Dev Ittycheria for any additional or closing remarks.

Well, I'd like to thank everyone for joining us on our first call as a public company. We appreciate your support. Thank you again. Take care. Good evening.

And ladies and gentlemen, that concludes today's conference call. We thank you for your participation.