MongoDB, Inc. (MDB) Q3 2021 Earnings Report, Transcript and Summary

Good afternoon and welcome to the MongoDB Third Quarter Fiscal 2021 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brian Denyeau. Please go ahead.

Thank you, Eely [ph]. Good afternoon and thank you for joining us today to review MongoDB's third quarter fiscal year 2021 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, President and CEO of MongoDB; and Michael Gordon, MongoDB's COO and CFO. During the call, we will make forward-looking statements including statements related to our market opportunity and future growth, the benefits of our product platform, our competitive landscape, our financial guidance, and the anticipated impact of the COVID-19 pandemic on our business and results of operations as well as on our clients in the macroeconomic environment. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. For a discussion of material risks and uncertainties that could affect our actual results, please refer to the risks described in our SEC filings including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Any forward-looking statements made on this call reflect our views only as of today and we undertake no obligation to update them. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures to the most directly comparable GAAP financial measure. With that, I'd like to turn the call over to Dev.

Thank you, Brian and thank you to everyone for joining us today. I will start by reviewing our third quarter results before giving you a company update. Looking quickly at our third quarter financial results, we generated revenue of $150.8 million, a 38% year-over-year increase and above the high-end of our guidance. We grew subscription revenue 39% year-over-year. Atlas revenue grew 61% year-over-year and now represents 47% of revenue. And we had another strong quarter of customer growth ending the quarter with over 22,600 customers. We're very pleased by our third quarter performance against a difficult and uncertain macroeconomic backdrop. We saw another record quarter of customer additions both in our direct sales and self-serve channels. As we discussed in the past, given the strong product market fit of Atlas, we decided to make a number of changes that make it easier for new customers to get on to our platform. We continued to reap the benefits of these adjustments in Q3 with record customer growth and strong net ARR expansion. On the self-serve side, our continued efforts to broaden our digital marketing funnel have resulted in over 2,000 net Atlas customer additions in Q3. As a reminder, our self-serve business is increasing not just an important revenue generator in its own right, but also a source of leads for our sales force. Strong self-serve net additions in Q3 indicates that this flywheel effect will continue in the future. I'd like to share some themes we have heard from senior level customers across a large swathe of industries and geographies. Customers are feeling more pressure than ever to innovate quickly to seize new opportunities and to respond to new threats, and 2020 has only exacerbated the need for speed meaningfully increasing the urgency to move to the cloud. When evaluating technologies, customers want solutions that provide a seamless migration path from on-premise to the cloud. They need mission-critical platforms that can massively scale and customers now recognize they have to simplify their tech stack to ensure agility and speed. Furthermore, the resiliency of the computing platforms and the ability to serve customers easily no matter where they are based has never been more important. As a result, customers are fundamentally rethinking their technology strategy and the debate is not if or when, but how to accelerate the modernization of their legacy applications as well as to build new apps to address the new business requirements. Consequently, it is clear the global pandemic is only accelerating the existing trends that are a significant catalyst for our business. These customers don't view us as just another database, but as a core platform to enable them to drive more innovation and growth for their business. Our Q3 results demonstrate that by helping our customers solve their most pressing challenges, our business continues to thrive during a challenging macro backdrop. So what is driving the success and how have we established ourselves as the leading modern general purpose database? Our differentiation comes down to three pillars. The first is technological. We believe that in the end, the best database wins. Databases are at the heart of applications and if the database is hard to use, has performance or scaling issues, the application itself will suffer and so will the business that invested in it. The foundation of our database is the document model, which maps to the way developers think and code and has proven to be the most productive way for developers to work with data. Moreover, our database was built from the ground up with a distributed architecture allowing applications to scale more easily and cost effectively while delivering outstanding performance. Our CTO, Mark Porter, has been in the database industry for over 30 years and he has tried many times in many different organizations to re-engineer relational databases into fault tolerant distributed databases. Due to the underlying limitations of the architecture of relational databases, this becomes a huge challenge to overcome. Instead, we've built a database that's incredibly easy to use, that is applicable for almost every conceivable use case, and is engineered for mission-critical workloads. A large banking customer recently remarked to us that employees steeped in decades of relational orthodoxy are at first curious about MongoDB, but within months become enthusiastic converts to the modern way of building and running applications. Our tech advantage clearly extends to the cloud. The most common go-to-market tactic cloud vendors use is lift and shift, moving on-prem relational workloads to an open source relational database service such as Postgres. After using this approach for a number of workloads, customers soon realized that the expected cost benefits from a cloud deployment are more than offset by the limitation of the underlying architectural constraints of relational databases. In other words, lift and shift is not the same as modernization and customers are increasingly coming to appreciate the distinction between the two. When it comes to customer satisfaction, we just closed the month of November with an NPS score of 74 for Atlas, a remarkably high number, particularly for our category and a clear indicator of how compelling our global cloud platform has become for our customers. We believe we have a fundamentally superior technology and customers are increasingly coming to the same conclusion. Our second pillar of differentiation is developer mind share. Over the course of time, alternative technologies have tried to replace relational databases, but they all failed because of a lack of developer adoption. The founders of MongoDB were developers themselves and intimately understood the challenges that developers faced working with relational databases, especially since a tabular approach bore little resemblance to how data is represented in application code, consequently making relational databases hard to use. Due to its ease of use and flexibility, the document model garnered incredible developer enthusiasm. By every objective measure, MongoDB is the most popular modern database in the world today. Our Community Server, the free to use product, has been downloaded over 130 million times and has been downloaded over 55 million times this year, which is more than the total number of downloads in the first 10 years of the company's history. The MongoDB community of developers is large and global and continues to grow every day. We have spent the last decade plus building that community and that is an asset that is difficult to replicate. Finally, the third pillar of competitive differentiation is increasingly structural and that is platform independence. Having a multi-cloud strategy is a strategic imperative for nearly every enterprise with 85% of enterprises today already using services from multiple cloud providers and the expectation is that this number will grow to 98% over the next three years. Not only do we provide an easy on-ramp to the cloud and run on all major cloud platforms, in the third quarter, we announced the general availability of multi-cloud clusters in Atlas, which enables customers to run an application across multiple public clouds simultaneously. With Atlas moving data, traditionally the hardest piece of an application stack to move, becomes far easier. Running an application across multiple clouds has a number of benefits. The application is more resilient as it is not subject to single-cloud outages, developers can easily leverage the unique capabilities of each cloud provider, and the applications can migrate between clouds with no downtime avoiding vendor lock in. Atlas is the first global cloud database that delivers a true multi-cloud solution. The combination of our unique value proposition and multi-faceted go-to-market model puts us in a great competitive position. We see our strong third quarter and year-to-date results in an unprecedented environment as an indication that our differentiation resonates in the marketplace. The strength in the quarter was broad based across geographies and customer segments. Our self-serve teams continue to rapidly experiment and launch programs to make it easier for customers to find and use MongoDB and our sales teams have remained disciplined about their rigorous pipeline generation and qualification process. We believe we're playing from an increasing position of strength and are well positioned to disproportionately benefit from the move to the cloud. Now, I'd like to spend a few minutes reviewing some customer wins and interesting use cases from the third quarter. Celebrating its 100-year anniversary this year, Pitney Bowes has undergone a multi-year digital transformation resulting in a highly distributed cloud services for the mailing, shipping, and financing needs of its 750,000 plus global clients, including 90% of the Fortune 500. The global technology commerce giant recently standardized its business critical applications on MongoDB Atlas to support its 1 billion plus global e-commerce business. One of the largest telecom providers in the Middle East decided to migrate from Oracle to MongoDB to modernize its legacy mission critical customer loyalty application and deliver a more seamless experience to customers around the world. MongoDB helped the company upgrade its architecture to accommodate the huge volume of new data coming from its digital channels and increase the speed of its application release cycles by a factor of three. Anheuser-Busch InBev, home to several of the world's most recognizable beer brands, chose MongoDB Atlas as the primary database for a proprietary B2B application, BEES. The platform digitizes Anheuser-Busch's relationships with its customers offering convenience, seamless communication, and most importantly, enhanced business performance. The BEES app has been its core revenue driver since COVID-19 started and its user base increased by 40% last quarter. One of the world's largest car manufacturers expanded its usage of MongoDB Atlas to support continued modernization efforts for its North American business. The company was able to standardize its application development and accelerate time to market across all its divisions while scaling to accommodate growing demand across the United States and Canada. Current, a leading U.S. challenger bank serving the needs of people who have been overlooked by the traditional banking industry, has increased their investment in MongoDB Atlas on Google Cloud after a year of exponential growth. They chose MongoDB for our consistent data model, enterprise security with field-level encryption, and multi-document ACID transaction capabilities. In summary, we are very pleased with our performance in Q3. We are executing at a high level, acquiring new customers at a record pace, and deepening relationships with existing customers by building on our core competitive strengths of technical superiority, developer mind share, and platform independence. With that, I'll turn it over to Michael.

Thanks, Dev. As mentioned, we delivered another strong performance in the third quarter both financially and operationally. I'll begin with a detailed review of our third quarter results and then finish with our outlook for the fourth quarter and full fiscal year 2021. First, I'll start with our third quarter results. Total revenue in the quarter was $150.8 million, up 38% year-over-year. Subscription revenue was $144.1 million, up 39% year-over-year and professional services was $6.7 million, up 19% year-over-year. To put our performance in the quarter into perspective, we thought it would be helpful to provide an update on how COVID-19 has impacted the growth of our business. First, let's talk about new business. Our ability to execute on new business opportunities with both new and existing customers continued to surpass our expectations in Q3 despite a difficult and uncertain macro environment. As Dev mentioned, customers are approaching digital transformation and cloud adoption with a heightened sense of urgency, which our go-to-market teams have capitalized on. I want to be clear, even though we performed better than our expectations in terms of new business, COVID-19 did have a negative impact on our quarterly performance. Second, the trend in existing Atlas customer spend has been steadily improving since the modest, but broad based slowdown we experienced in Q1 due to the impact of COVID-19. In Q3, the growth from existing Atlas customers has returned to our pre-COVID trends. Overall, Atlas' strong performance continues to be the largest contributor to our growth. Atlas grew over 61% in the quarter compared to the previous year and now represents 47% of total revenue compared to 40% in the third quarter of fiscal 2020 and 44% last quarter. During the third quarter, we grew our customer base by over 2,400 customers sequentially, bringing our total customer count to over 22,600, which is up from over 15,900 in the year ago period. Of our total customer count, over 2,800 are direct sales customers, which compares to over 1,900 in the year ago period. The growth in our total customer count is being driven in large part by Atlas, which had over 21,100 customers at the end of the quarter compared to over 14,200 in the year ago period. It's important to keep in mind that the growth in our Atlas customer count reflects new customers to MongoDB in addition to existing EA customers adding incremental Atlas workloads. We had another quarter with our net ARR expansion rate above 120%. We ended the quarter with 898 customers with at least $100,000 in ARR and annualized MRR, which is up from 688 in the year ago period. The continued strong growth in customers with $100,000 or more in ARR is an indication of our success of our land and expand go-to-market strategy and the fact that we're increasingly becoming a strategic partner and a database standard for our customers. Moving down the P&L; I'll be discussing our results on a non-GAAP basis, unless otherwise noted. Gross profit in the third quarter was $108.6 million, representing a gross margin of 72%, which is consistent with both last quarter and the year ago period. Overall, we're pleased with our gross margin performance, which reflects greater efficiency and scale in our Atlas business. However, we continue to expect that we'll see some modest reduction in overall company gross margin as Atlas continues to be a bigger portion of our revenue. Our operating loss was $16 million or negative 11% operating margin for the third quarter compared to negative 13% margin in the year ago period. Our outperformance versus our operating loss guidance was driven in part by our revenue outperformance. In addition, we had assumed a partial normalization of travel and facilities expenses due to the gradual reopening economy, but that normalization didn't occur in Q3 and doesn't seem likely in the near-term. While those pandemic related savings are benefiting our bottom line in fiscal '21, we don't expect this to be a sustained benefit. Net loss in the third quarter was $18.2 million or $0.31 per share based on 59.4 million weighted average shares outstanding. This compares to a loss of $0.26 per share on 56.4 million shares outstanding in the year ago period. Turning to the balance sheet and cash flow. We ended the quarter with $966.8 million in cash, cash equivalents and short-term investments and restricted cash. Operating cash flow in the third quarter was negative $8.1 million. After taking into consideration approximately $6.8 million in capital expenditures and principal repayments of finance lease liabilities, free cash flow was negative $14.9 million in the quarter. This compares to negative free cash flow of $13.1 million in the third quarter of fiscal 2020. I'd now like to turn to our outlook for the fourth quarter and the full fiscal year 2021. For the fourth quarter, we expect revenue to be in the range of $155 million to $157 million. We expect non-GAAP loss from operations to be $23 million to $21 million and non-GAAP net loss per share to be in the range of $0.42 to $0.39 based on 60.2 million weighted average shares outstanding. For the full fiscal year 2021, we are increasing our revenue guidance to $574.4 million to $576.4 million. We are improving our profitability expectations and now expect non-GAAP loss from operations to be $56.6 million to $54.6 million and non-GAAP net loss per share to be in the range of $1.07 to $1.04 based on 58.9 million weighted average shares outstanding. Our guidance incorporates an expectation that the ongoing COVID-19 pandemic will impact Q4 and likely continue into fiscal '22. Moreover, we believe that the recent measures implemented in Europe and the U.S. to fight the resurgence of the virus will add uncertainty and volatility to the business environment. Let me explain how this impact is captured in our business outlook. Starting with new business, well so far, we've outperformed our expectations due to strong customer engagement. We do expect to see similar headwinds to our new business activity in Q4. We also face a particularly tough year-over-year comparison in terms of new business because last Q4 was quite strong for our Enterprise Advanced product. Enterprise Advanced has a more immediate impact on revenue due to the fact that under ASC 606, we recognize the term license component upfront. Furthermore, our forecast reflects the compounding impact from the slower than historical growth from our existing Atlas customers that we experienced earlier in the year. Even though growth rates have returned to pre-COVID levels, we experienced several months of slightly lower growth that impacts the base of recurring revenue entering Q4. Lastly, customer cohort behavior and net ARR expansion rates continue to be strong despite the macro challenges as customers increase their investments in our platform. To summarize, MongoDB delivered excellent third quarter results. We're executing well despite operating in an unprecedented environment. We're investing in the business for the long haul and believe that we're well positioned for continued success. With that, we'd like to open it up to questions. Operator?

[Operator Instructions] Our first question today comes from Raimo Lenschow with Barclays.

Hey, congratulations from me, a great quarter. One quick question, I see the really nice increase in new customers and congratulations, amazing what you're doing there, but I'm also then seeing a deceleration on growth on Atlas self-serves. Can you just help me understand like how this kind of links together, I assume it's a lower ASP that you are signing there, but just try to help me understand that a little bit. And then one for Michael as a follow-up, like if you think about next year and I think about kind of improvement around profitability, like how do you think about it because you had a lot of like kind of call it like one-off benefits this year with less travel, etcetera, like how should we think about modeling next year? Thank you.

Thanks, Raimo, it's nice to talk you. With regards to your question on self-serve, actually, we feel really good about our self-serve business. What's happening there is that the self-serve is a great source of new customers that makes it just very easy for customers to engage with us in a very frictionless way and then quite a number of those customers end up being leads to our -- both our corporate or inside sales team as well as our field team. So that's what's happening there. It's not because we're seeing any slowdown in our self-serve business.

Okay, perfect. Thank you.

Yes, I think on the second piece of the question, obviously, we'll get to our guide in fiscal '22 in the March call, but I think what we tried to be clear about is, we are definitely looking at the business from a long-term perspective and the guidance in Q4 includes pulling forward some of the hires and other investments that we would have made in fiscal '22 given that we are seeing some COVID-related savings and we talked in an earlier call about our intention and desire to reinvest those now and that continues to be the plan.

Perfect, thank you. Congrats.

Thanks.

Our next question comes from Sanjit Singh with Morgan Stanley.

Thank you for taking the questions and my congrats as well on another strong quarter. Dev, I guess my question sort of relates to the topic of machine learning and sort of the data management and data workflows supporting machine learning. There is definitely a growing ecosystem around that and in terms of the like -- in terms of the application development component where maybe there's a new generation of applications that are going to be more machine learning infused, MongoDB hasn't necessarily been a huge player in that core analytics market, but if you think about supporting this next generation of applications, what's the positioning for the document model in MongoDB specifically for this kind of next generation of applications that are emerging.

So one, I would tell you that we already have a number of customers who have built-in machine learning capability on top of MongoDB. So this has been happening for a number of years. So, two, the power and flexibly of the document model is even more profound as people want to do more and more sophisticated things with applications and keep in mind that MongoDB is a very scalable platform and so being able to have a platform that allows people to leverage the massive amounts of data to train the algorithms is incredibly helpful and just today, Amazon made an announcement around their SageMaker product where we were part of that announcement and our CTO, Mark Porter was quoted where we are, you know, allowing customers of SageMaker to basically leverage data sitting in MongoDB. So from an application development point of view, we're very well positioned. This is a natural path of people building more sophisticated applications and the document model is set up very nicely to help people build more and more sophisticated and complex applications just given the power of the model.

Understood -- well, understood on the distinction there. So let's go back to the acceleration in new customers -- customer adds, it's been going on for a couple of quarters now. I think what also impresses me is the acceleration happening on the direct sales side as well. So you can sort of talk through whether it's the same sort of playbook that you're using to accelerate the self-service side and any sort of indications from these new cohorts that you're bringing on in terms of their profile. Is there any reason not to believe that these customers will expand in sort of the similar sort of trajectory as your prior cohorts before you really accelerate the initiative to increase your customer velocity?

Yes, sure. On the direct side, we actually made a decision prior to COVID becoming front and center for all of us that we just saw last year a lot of friction where our sales people were incentivizing or trying to incentivize customers to make some sort of commitment typically at least an annual commitment because that's the way that they were paid and what we realized with a lot of these customers, sometimes these workloads were new and just didn't know what -- how much you know the kind of resources they would need on Atlas. They just -- didn't -- the friction of getting the approvals to sign a longer-term commitment was that much longer and they liked the flexibility of being able to basically just start using Atlas directly. And so we encouraged -- we saw the strong product market fit of Atlas and once people started using Atlas, the growth was quite profound and so we said, why don't we take away that friction. So, we changed the comp plans for this fiscal year to encourage our sales people to sign up customers more quickly and that has paid huge dividends. It's allowed us to engage customers more quickly and allowed us to acquire a lot more new customers.

Understood. Appreciate it. Congrats, guys.

Our next question comes from Brent Bracelin with Piper Sandler.

Good afternoon. One quick one for you, Dev and one for Michael. I mean, Dev, what type of customer cohort does multi-cloud functionality appeal the most to. Is it the start-ups you think or are there some large enterprises that have appeal there. And then for Michael, EA looked like it was a little stronger than we had expected. Was there a federal tailwind this quarter or were there other factors that kind of drove upside in EA? Thanks.

Yes. So Brent, on the multi-cloud clusters, it actually can -- it just really depends on the sophistication of the organization and how broad a user base and customer base they are going after. For example, we already have customers for example in Canada who are trying to serve the Canadian market and are running their application across different cloud providers all in Canada because they want to leverage the reach -- the broad reach of being able to leverage all three cloud providers and they also wanted to have the benefits of resiliency in case one cloud provider goes down and there were some high profile outages right before Thanksgiving. They don't have to worry about their application going down, and that is, I wouldn't say is one of the -- is not a very large customer. Then, on the other hand, you could also have large enterprises who increasingly want to leverage the different capabilities of the different cloud providers. Each cloud provider is differentiating themselves across different dimensions of capabilities and so being able to do that reach. Again, some cloud providers have more presence in certain markets than others do and also just keeping the vendors honest is something that plays well especially with senior level decision makers who've lived the movie before about being held hostage by particular vendor. So it really ranges depending on the organization, but we think it's very applicable for very sophisticated early-stage companies as well as large enterprises.

Very interesting. And then, Michael on EA, any color there?

Yes, so just quickly. So, not a Fed -- push or Fed impact. EA continues to be an important leg of the growth stool. I certainly understand that Atlas obviously steals a lot of limelight occasionally but EA continues to be quite important and relevant. It's very much a customer choice situation and we're just trying to make it easy for them to consume some MongoDB wherever they are vis-à-vis their cloud posture. Obviously, there'll be variability as we've talked about on EA given 606. I would say there's also variability kind of quarter-to-quarter as we've talked about in terms of relational migrations, but as you heard from Dev in the prepared remarks and some of the case studies, it was a good quarter from that perspective as well. So generally just good broad-based participation.

Good to hear. That's all I had. Thanks.

Thanks, Brent.

Our next question comes from Brad Reback with Stifel.

Great, thanks very much. Dev, as you look at the Atlas self-service business, are there any constraints around how many customers you could add in a quarter?

There's clearly -- there's obviously some limits to how many we can actually add, but there is no natural constraint. It's not like we're constrained by having enough sales people in place. The sign-up process is automated. We can handle tons of volume. So, technically, we can add a lot of customers. What we're obviously continuing to hone is develop the marketing program and the experiments and use content marketing to go acquire new customers and we're getting more and more sophisticated in that. So our self-service pipeline continues to grow nicely.

Great. And then, just one quick follow-up. In the press release you talk about a DoD DevSecOps opportunity. As you look at that longer-term, do you think that gets fulfilled mainly via EA or Atlas? Thanks.

Yes. I think like many customers, I think every organization is in some way on some path to the cloud. We've talked about this in the past. Not only do we see this in the federal sector or even the state and local government sector, but clearly we see this even in the commercial sector where there are certain customers who are much more cautious, maybe because they are in the regulated industry or just culturally they are more cautious, but they are all moving in some way, shape or form towards the cloud. The benefit of using MongoDB is that we give them a very seamless migration path to the cloud and what I mean by that is they don't have to rewrite one line of code to move from an on-prem deployment to a cloud deployment. So that takes away a lot of risk. In some ways, we future-proof their applications. I think with this particular fed situation, I think much like in enterprises and other organizations, I think there's some workloads that are more naturally predisposed to stay on-prem and then obviously there is a big initiative obviously with FedRAMP where you have to certify yourselves against a bunch of criteria to be able to run in the fed -- in the clouds that the Fed's authorize and so that is work that we're already doing because we do see a huge amount of demand there and I should mention that the federal government has been long time users and customers of MongoDB even before I joined the company. So that is a segment that's been early in its adoption of MongoDB.

Great, thanks very much.

Our next question comes from Jason Ader with William Blair.

Yes, thank you. Hey, guys, on the Postgres migration comments that you made, Dev, can you talk about some of the underlying limitations that customers are facing as they do that and how -- and what you guys bring to the table to help them in that modernization effort?

Sure, so there is a number of limitations. One with using a relational database, you basically have to stuff data into a tabular format into rows and columns and that's not the way developers think nor is it the way they code. So what MongoDB allows you to do is one, be able to think about your data much like -- in a much more natural way. So, for example, a customer record does not have to be disaggregated into a bunch of different tables. You can treat a customer holistically and keep everything about that one customer in a document. Second, making changes is that much easier because you can make changes on the fly without having to change all the documents for all the other assets you're tracking nor having to update a centralized catalog etc. So making changes in MongoDB is that much easier versus a relational database. Third is scalability. Relational databases were designed to be single node systems. MongoDB was a distributed -- was designed from the ground up to be a distributed database. So not only do we allow you to move quickly, but we'd like to scale, very, very fast, which is why lots of customers pick MongoDB because they have such high performance and scale requirements. The fourth issue is resiliency. By definition because it's a distributed architecture, we have multiple copies of the data. So if one node goes down, whether it's for a system or a network failure or some other failure, your application is still up and running. You have to do a lot of work on the relational database side to build in that level of fault tolerance and it can be quite expensive and still not really deliver on your requirements. So for all those reasons, people are recognizing that the document model is a very powerful way to model your data, it's the most natural and the most productive way for developers to work which is why we've become so popular.

And just a quick follow-up on that. So understanding all of the advantages, is the issue just from an adoption standpoint that moving to kind of a similar model, relational database in the cloud is just easier and modernization is more of an effort on the part of the customer. Is that the main issue?

Yes, the perception on many customers part, moving from a legacy relational database to an open source database in the cloud will require less work. So when someone is say under pressure to move off particular legacy contract because the contract is up for renewal, they may in their mind believe that moving to an open source relational database in the cloud is a better option. What we are spending time on -- what we are -- the analogy I use with our sales people is that we're selling a very powerful language and for some people, because it's a new language, they've been using the old language for 50 years, it can be a bit intimidating. So we have to educate them on the benefits of our language and when they get educated, they suddenly see the power of the document model, the power of our distributed architecture, the scalability of our platform. They basically just recognize the benefits of our platform and that's why they start moving to MongoDB. And so depending on where they are in their journey, I encourage our sales people to really educate our customers about the benefits of MongoDB and they don't have to sell very hard. As soon as they explain the benefits, customers get it. And as I said in my prepared remarks, we had this banking customer who remarked to us that a number of their people who were long time relational -- I could almost say bigots, just when they started learning about MongoDB became huge enthusiastic converts to MongoDB and we see that happening all over the place and we're seeing that happen now in all these accounts that we've been working in where more and more of the workloads are now coming towards MongoDB.

Thanks very much.

Our next question comes from David Hynes with Canaccord.

Hey, thanks guys, congrats on the results. Dev. So, sales and marketing spend ticked back up as a percent of revs. You told us that would likely happen and you're clearly seeing some nice yield from that spend, what's the plan from here? Is it more of the same or do you think, does it feel like more spend could even yield faster customer growth?

I'm trying to grow -- I think we collected as a leadership team we're trying to grow our sales organization as fast as possible, but there's limits to how fast you can grow because you don't want to cut corners on quality, you don't want to cut corners on investing in ramping these sales people, giving them the right management support and the right technical support for them to set up for success, but I think we've talked about this in a number of earlier earnings calls. We still feel like we're vastly underpenetrated. There are a few slots of the market that we just don't have enough salespeople and so we are trying to grow our reach and expand our reach as fast as we can and that's not just in North America, but in Europe as well as in Asia and we're seeing great demand in all regions even Latin America as well and so for us it's really finding the right leadership team to invest in building a team around them and then scaling that over and over again is really the constraint in terms of growing our sales force.

Okay. Yes, makes sense. And then Michael, a follow-up for you. So a more significant jump in the $100,000 plus cohort this quarter. Is that just timing that more happened across that threshold in Q3 or is there something more insightful happening there?

Yes, I think it's really hard to get super precise in sort of the sequential changes or anything like that in that bucket. Sometimes, we've had quarters where it's been very large. Other times we've had quarters where it's been a little bit lower and all the growth was in people who are already above the threshold. So it's somewhat arbitrary threshold designed just to help people understand that people are making meaningful levels of investments, but I think it is when you get that many number of customers in the absolute who are spending above that level, I do think it's an indication that we're a meaningful part of their technology infrastructure.

Yes, makes sense. Okay, congrats guys.

Thanks, David.

Our next question comes from Rishi Jaluria with D.A. Davidson.

Hi guys, this is Hannah [ph] on for Rishi. Thank you for taking my questions. First, could you just talk about how traction with Realm is going and given it's a newer product, how do you think about your competitive positioning with that product specifically relative to mobile database offerings from other modern database providers?

Yes. So one, I should just remind you that we [indiscernible], Realm product earlier this summer. So we still believe we're in the very early days of this product and I would say the early traction has been really good and we're seeing really nice month-over-month increases in usage, but again, it's early and the revenue for Realm won't show up as a different SKU, it will show up as Atlas revenue because that will drive more consumption of Atlas. And in terms of adoption of Realm as the mobile database, we do recognize that when we acquired Realm, they had not really invested in kind of invigorating the developer community and so we're making investments in doing that as well. Excuse me. And that will also take some time, but we're very pleased in terms of our positioning. One of the killer features that and we will be announcing or we've announced, but will be available -- will be early next year, which is called Realm Sync, which will provide very sophisticated data synchronization capabilities between the client and the back-end. That is one of the hardest problems for developers to solve and automating that will make the platform that much more attractive for developers to build mobile apps on. And we're really bullish on the mobile space because with the advent of 5G and other related technologies, we see that mobile apps will become even mission critical, have much more rich features, streaming types of data and so forth that will require a very sophisticated platform to support.

Great, that's helpful. And then, how do you think about your ability to serve the world's most complex use cases. And what do you feel like technologically differentiates your platform relative to the other no-sequel more modern database providers.

Yes. So I would say, one, when I joined the company about six years ago, I would say that we were considered to be just in a basket of no-sequel vendors, it wasn't clear who the breakout company was going to be. I would say, six years later, I think we've proven that one, we had a significant technology advantage because -- even the size of our community at that time was far bigger than any of the other no-sequel providers. We were able to marry that technology advantage with really strong execution and we've grown our business faster, we delivered better financial performance, we've got more customers than any of the other no-sequel vendors and along the way, we've also done a lot of product innovation, more recently with multi-cloud clusters, earlier with multi-document ACID transactions and a bunch of other capabilities, that's really pushed the envelope. So MongoDB today is not what I'd call a no-sequel database, I would call it a modern general purpose database and we have some of the largest, most sophisticated, and savvy customers across almost every industry and geography using MongoDB to transform their business and we're very proud of that and we feel we're very well positioned to go after the most mission critical workloads no matter the use case.

Great to hear. Thank you.

Our next question comes from Tyler Radke with Citi.

Hey, thanks very much. I wanted to ask you about the sequential improvement that you saw in Atlas. You added about $10 million of incremental revenue, which was up from the $7 million that you added a year ago and up from the $6 million that you added last quarter. I know you obviously saw record net adds and you're seeing some incremental improvement in Atlas expansion rate. I guess what do you kind of attribute the improvement and then the incremental revenue to the most and was there any kind of one-time items that you would caution us just kind of from a extrapolating the sequential growth in Atlas to future quarters?

Sure, yes. Thanks, Tyler. I think the overall -- it was a very strong quarter really across the board, but including within Atlas, we saw obviously a lot of new customer additions, but those tend to be when a customer comes on tends to be smaller and they grow from there. So it's really, it's most of that growth in the expanding -- of the existing customer base. And as I mentioned, we saw both Q1 and then for Q2, we talked about in the various calls, that's slightly slower growth that really reverted more to normalized levels, pre-COVID, which is great to see and I think you see that showing up in the numbers. So, I think it's really kind of all the parts of the chain that you would expect strong additions, good underlying behavior, stickiness, kind of expansion within the customer base and generally the sort of very strong cohort dynamics that we have really just plying outside; so I wouldn't point out [ph]. It wasn't really any one thing in particular or any particular meaningful outliers worth calling out.

Okay, helpful. And then, just wanted to clarify, as you think about the factors impacting the Q4 guidance. Obviously, you called out a tough comp on the EA business, part of that's related to 606 accounting. Are you adding any kind of incremental caution just on the macro environment in Q4 relative to where you were a quarter ago. Obviously, the world is kind of -- it's really evolved to -- the world business environment is at a different place than people thought at the beginning of the year, but just kind of curious how your expectations are for Q4 versus [ph].

Yes, I'd say a few things when looking at the Q4 guide. First of all, obviously, we significantly raised our outlook for Q4. So that clearly indicates our confidence despite the macroeconomic environment. That said and our Q3 strong results notwithstanding, we do expect to see a continued impact on new business. I think it's hard not to. We've seen great customer engagement, but there is plenty of macro uncertainty and I think you can see deals receiving more scrutiny given the current environment and so I think that's sort of captured and reflected. The second thing that I would add from a big picture perspective is we've talked about Atlas. It's great to see that the cohort dynamics and the behavior are back to pre-COVID levels, but we're entering Q4 with just a smaller recurring revenue base than we would have had we not had those COVID headwinds in the earlier half of the year. And then, the third thing I'd point out is just a tough compare which you referenced, which we had called out last year was about $3.5 million incremental of EA and again this has sort of impacted not just the denominator, but also the numerator given how 606 works.

Thank you.

Our next question comes from Patrick Walravens with JMP Securities.

Okay, great. Thank you. And let me add my congratulations. So, Dev. I'm wondering what your R&D priorities are right now and maybe an easy way for us to think about it is, what do you want your software to be able to do in the relatively near future that it can't do today?

Well, I think what I want MongoDB to be known for and I think we're on a path to get there is to be the best place to build modern applications and I believe that the ability to innovate using software and data will determine the company's competitive advantage long-term and that's going to be really, really important. I think the power of the document model, I think our really powerful but easy to use query language, our ability to handle any workload, any size of data all play to our strengths and I think we talked a little bit about, you know, the fact that we have a huge developer community that's only growing by the day and that we provide platform independence. So, I think we have all the ingredients to be a very viable if not compelling place for people to build all their modern applications and that's what we're striving to. Clearly, you're going to see us and we've talked about this in the past, you're seeing us expand from being a database to a data platform. We announced a whole bunch of new products. Those products will continue to grow and mature overtime, we'll probably announce new capabilities over time. So, we're just going to make it easier for developers to build very sophisticated applications, applications that span system of record, systems engagement and systems of insight and we think application of the future will embed all that functionality and we're really well positioned to be the premier place for people to build those applications.

Great. Is there one thing you can say you can't do now but that you're excited that's coming in the next year or two?

Obviously, we're a 13-year old company. So we have a lot of capability and I wouldn't say there's anything that prevents us. I mean, frankly, the one thing I think that really prevents us is awareness or perception of us from a company that we were six, seven years ago. So the more people learn about us, the more people are updated about our capabilities, the more people spend time learning about the technology, the quicker they become enthusiastic converts and that's a big part also of our go-to-market strategy.

All right, great, thank you.

Our next question comes from Ittai Kidron with Oppenheimer.

Thanks. Hey guys, great quarter. Good stuff. Dev, want to start with you for some on Atlas. Clearly, very good progress over there. Can you talk about conceptually how a new Atlas user today is different from perhaps an Atlas user a year or two ago in the sense of who he is and what he or she are doing and how quickly they're growing their usage of the platform?

Yes. I don't know, maybe a couple of years, maybe two, three years. I remember, Atlas was launched in 2016. So I would say our first cohort of customers were probably people who were kicking the tires, trying to really understand how to use the platform, not really put mission-critical workloads on Atlas and so they were probably early adopters. What we've seen now and it's clear is that enterprises are going very aggressively into the cloud. So we have very mature, very conservative organizations who are now using Atlas. What we're also seeing is actually small development teams sign up through self-serve who are parts of big organizations, but they just want to get going on Atlas, play with it, launch some applications on it, get a feel for it as a precursor to maybe a big deployment of Atlas. And then, the other thing that we've done is we just become much more sophisticated in terms of expanding the coverage of access to customers through our self-serve channels. So we're seeing a lot of people sign up for Atlas in other markets, markets in Asia, markets in Latin America and so and so forth that we don't necessarily have a lot of sales people in and that gives us a good way to go after those markets as we continue to build out our sales force. So that's where I would see how the market has or the customer base has changed overtime.

That's great. Very helpful and then Michael, on, I want to kind of dig into a little bit into your return to pre-COVID levels. Could you be a little bit more specific on what you mean by that. Does that mean that expansion rate has bounced back up? ACV -- first deal ACV. Help me amend and what does that mean, if you could break that down for us?

Sure. You know very specifically in Q1, we had talked about how we saw a slowdown in the expansion rate of existing customers within Atlas and then that got a little bit better in Q2. So that's really what we're talking about. So think about the Atlas customers -- Atlas revenues is all consumption based. This is not about deal activity or commitments or things like that. We walked everyone through back then was clearly you can see the adds continue to be strong when we saw slightly slower expansion. One of the first questions was, was there any churn or increase in churn. We haven't seen any changes and that would sort of underscore the mission critical position that we occupy within a customer's environment and what we saw was, if it's not gross adds, if it's not churn, really it's about sort of the expansion dynamics within a customer, what we saw was a slight but broad based slowdown really starting kind of the second half of March in Q1 and continuing into Q2. The first hypothesis was that it was sort of industry driven right maybe industries that were particularly affected by COVID, hospitality, travel, things like that, but instead, it was really much more broad based and modest impact as opposed to a narrow number of customers are having a major impact. We talked about that in the September call that how we've seen some improvement, but not all the way back to historic levels. And so what we're saying here is that based on the data we've observed in Q3, those dynamics are now back to pre-COVID levels. So continued expansion without sort of slight decline that we'd seen. Obviously, continued strong adds and very sticky, which you can see in the overall numbers, but we wanted to try and disaggregate that a little bit for folks and sort of give an update based on the fact that had been a factor and the way it plays out in terms of the Q4 numbers is really, you wind up entering Q4, even though the expansion dynamics are sort of back to normal, you are beginning Q4 with a smaller recurring revenue base than you would normally have if you hadn't had slightly slower growth in Q1 and Q2, etcetera. So hopefully that helps people understand.

Got it. Very good, thanks. Good luck, guys.

Thanks.

Our next question comes from Jack Andrews with Needham & Company.

Good afternoon and congratulations on the results. I want to see if we could dig in a little bit more into the legacy migration opportunity. It sounds like from your prepared remarks that there is a good appetite for these types of projects. I know you've announced some recent partnerships in this area. So who is really helping you go after this market opportunity today and who do you think can help you tackle this moving forward.

Yes, sure. So just to make sure people understand why we see there's a big opportunity. The premium innovation has never been higher, because obviously what COVID has done has created both opportunities and risks for companies and people need to move very, very quickly to either seize opportunities or respond to new threats of the business. And so that means you need to innovate very fast. What that means is that you need to be able to and obviously innovation today means being able to use software and data to build new applications, to add new features, to add new capabilities etcetera and that means you need a database platform that enables you to do that. One of the challenges of relational databases is that as you add more and more capability, the data model becomes increasingly more and more brittle, so it becomes harder and harder to add those capabilities. So when you're in an environment where you need to move fast, you start saying do I want to stay on this on this brittle platform or do I want to move to a much more modern architecture where I can move very, very fast as well as change directions quickly and that's what's driving this demand to modernize our legacy application portfolio and so we feel that we're really well positioned for this opportunity. We're a proven technology, we have reference customers in almost every industry and so we think the legacy modernization or migration opportunity is really big and what we're seeing now is in terms of partnerships we've historically had a lots of SIs who worked with us because their business model is very complementary to ours. In some ways, they take on the development onus for the customer and so we just announced obviously people who are joining our program to help customers migrate off relational databases and these are some of the largest SIs in the world. We also work with some really interesting boutique SIs who have some real deep MongoDB expertise. The other players, actually the cloud providers themselves they work with us, they provide marketing space. We work with our sales people to help customers migrate off legacy platforms to the cloud and obviously running Atlas on their particular cloud. And then we also work with ISVs. A lot of these ISVs, some of them are legacy ISVs who are now realizing that rather deploying or offering an on-premise legacy solution, they have to be much more modern and offer a SaaS-based solution. So they are re-platforming their own product with MongoDB as the underlying data store. So, those are three examples of partnerships that we work with partners that we work with to help people migrate off legacy applications.

Got it. Thanks a lot for your perspective.

My pleasure.

This concludes our question-and-answer session. And I would like to turn the call back over to Dev Ittycheria for any closing remarks.

Well, I would like to thank everyone for joining us today. I'm really proud of the strong execution this quarter in a difficult macro environment. As we discussed, we're making continued investments in product innovation that further establishes MongoDB as the preeminent independent modern data platform, and our differentiated value prop is really best on best-in-class technology, developer mind share, and platform independence; and this is resonating with both, our existing as well as new customers, and we're looking forward to finishing the year. So, thank you for joining us, and we'll talk to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.