MongoDB, Inc. (MDB) Q4 2022 Earnings Report, Transcript and Summary

Good evening. Thank you for attending today's MongoDB Fourth Quarter FY 2022 Earnings Call. My name is Selena, and I will be your moderator. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Brian Denyeau, with ICR. Please go ahead.

Thank you, Selena. Good afternoon, and thank you for joining us today to review MongoDB's fourth quarter fiscal 2022 financial results, which we announced in our press issued after the close of the market today. Joining on the call today are Dev Ittycheria, President and CEO of MongoDB; and Michael Gordon, MongoDB's COO and CFO. During this call, we will make forward-looking statements, including statements related to our market and future growth opportunities, the benefits of our product platform, our competitive landscape, customer behaviors, our financial guidance and our planned investments. These statements are subject to a variety of risks and uncertainties, including those related to ongoing COVID-19 pandemic and its impacts on our business, results of operations, clients and the macroeconomic environment that cause actual results to differ materially from our expectations. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks described in our SEC filings, including our most recent 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, we will discuss non-GAAP financial measures 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.

Thanks, Brian, and thank you to everyone for joining us today. I will start by reviewing our fourth quarter results before giving you a broader company update. Looking quickly at our fourth quarter financial results, we generated revenue of $266 million, a 56% year-over-year increase and above the high-end of our guidance. Atlas revenue grew 85% year-over-year, representing 58% of revenue. We had another strong quarter of customer growth, ending the quarter with over 33,000 customers. The fourth quarter marked another major milestone as we crossed $1 billion in annualized revenue run rate. Crossing over the $1 billion mark five years after reaching the annualized $100 million mark is clear evidence of the value MongoDB's application data platform offers customers, large and small, all over the world. Our excellent fourth quarter performance was broad-based. We saw success in nearly every industry, geography and customer type. It was powered once again by the ongoing strength of Atlas. We also saw an uptick in sales for Enterprise Advanced, which speaks to the popularity of MongoDB, regardless of where our technology is deployed. Customer net additions remained robust, especially in our direct channel where Q4 marked a new record. It is expected that hundreds of millions of new applications will be developed over the next few years, as most organizations now recognize that a competitive advantage has to be built rather being blocked with off-the-shelf software. The core reason for our success is that in an era where there is an urgency to build compelling modern applications, MongoDB reduces the friction and cost of working with data, which is the biggest challenge developers face. However, the developer experience of working with data has become increasingly complex. The technologies and mechanisms of working with data have continued to get more fragmented as there has been a proliferation of specialized and niche data technologies, each designed to solve a slice of a growing set of necessary data use cases. The hyperscale cloud providers are reinforcing this by taking a bag-of-tools approach by introducing many proprietary point solutions. This approach pushes complexity on to developers, to wrangle these data technologies in their applications and develop workarounds to address scalability and performance. The complexity created by this data sprawl impedes the speed of innovation, adds cost and effectively becomes a direct business risk. MongoDB's application data platform takes a radically different approach to liberate the developer from the unnecessary data complexity to accelerate innovation. First, our platform removes enormous friction in how a developer works with data instead of requiring developers to work with inflexible data models, MongoDB is built on the document model, which is aligned to the way how developers think and code. The docking model not only allows developers to build applications faster but to also easily make changes in response to business conditions or customer feedback. Second, our application data platform enables developers to focus on the needs of the business as opposed to working around the constraints of their data infrastructure. MongoDB abstracts away all that complexity through an architecture that is designed to address the vast majority of use cases. Instead of having to deal with numerous point solutions, customers can use our tightly integrated platform that offers a unified and seamless developer experience. Third, our platform is designed to meet the most demanding requirements for performance and scale. Unlike other solutions that struggle scaling beyond a few nodes in a few regions, MongoDB's application data platform can enable anyone to provision a globally distributed and persistent data platform anywhere in a matter of minutes with just a few clicks of a button by virtue of being available on 80-plus regions across AWS, Azure and GCP. Perhaps the best evidence that our platform is resonating in the marketplace is in the growth of our customer base. We ended the year with over 33,000 customers, of which over 1,300 are fix figure customers and 164 are $1 million plus customers, the latter number growing nearly 70% year-over-year. This level of customer adoption is reflective of our popularity around the world as well as our value as a general purpose rather than a niche technology. To provide a small sampling of how MongoDB is used across different industries. In Financial Services, MongoDB is used for a trading platform, global payment data store, a digital end-to-end loan origination and servicing solution, general ledger system of record, regulatory risk, treasury and for many other back-office processes. In the retail sector, MongoDB is used for single view, real-time product catalogs, hyper-personalization, recommendation engines, AI-driven customer engagement, inventory and supply chain management, including sensor tracking and omni-channel user experiences. In the telecom industry, MongoDB is used to enable smart home services, Internet of Things, media streaming, call routing, endpoint management, real-time fulfillment, AI-based fraud detection and advanced billing and payment services. These are a few examples of how MongoDB is being used. We also do extensive work in the health care, manufacturing, gaming, oil and gas and many other industries. We continue to be excited about the future and the massive opportunities in front of us. Businesses across all industries will continue to invest heavily in software as a means to differentiate themselves to seize new opportunities and to respond to new threats. While this has been happening aggressively over the past decade, we are still only in the early stage of this movement. As infrastructure becomes more advanced, with chips getting more powerful, algorithms getting smarter and networks getting faster, the capability for innovation only increases. Powerful software powered by real-time data will empower experiences and business models we cannot even conceive of today. Future applications will need to be incredibly responsive, increasingly global and requires strong distribution data to the edge or across the world. However, there is still a dearth of development talent to meet this demand. Consequently, organizations will invest in technologies that allow developers to go faster by offering an integrated suite of data capabilities to build smarter applications. In fiscal 2023, we'll continue to build on our momentum and advantages in the marketplace. In product, we'll continue innovating to enhance the value of our platform. Our high win rates and strong broad-based performance gives us confidence to continue to rapidly scale our sales organization as we remain fractionally penetrated in the 70 billion-plus market. In marketing we see a great opportunity to elevate our brand and our value proposition to the voice of our customers who are doing remarkable things to our platform across different industries and geographies. Finally, we'll continue investing in our people, processes and systems to support rapidly scaling our company. Now I'd like to spend a few minutes reviewing some customer wins and interesting use cases from the fourth quarter. Ultrafast grocery delivery pioneer, Getir has revolutionized last mile grocery delivery with its 10-minute grocery delivery proposition, making thousands of everyday items available in minutes. The company has built its core grocery delivery platform on MongoDB community and migrate to Atlas. Getir achieved superior performance and reliability and also relied on Atlas' always-on multi-region clusters for 99.995% uptime during its critical US launch. One of the largest North American banks chose MongoDB as its modern database standard to fuel modernization, improve uptime and power a highly available, always-on secure customer experience for the bank's 10 million of retail customers. The bank runs over 200 applications on MongoDB across digital, capital markets, consumer lending, risk and payment divisions. Use cases span mainframe offload, operational data store, single view of the customer, time series, cashing, real-time analytics, mobile and content management. Società Generale d'Informatica or Sogei, is an information technology company operated by the Italian Ministry of Economy and Finance. It recently chose MongoDB as the application data platform for a government initiative that mandate citizens to present a digital or paper certificate to show whether they have been vaccinated, tested negative or recovered from COVIN-19. Called the Greenpass project, the program grants access to activities like restaurant dining, museums, cinemas, amusement parks and more. Sogei was able to generate 150 million certificates in less than 45 days with MongoDB. Content cloud company Box empowers more than 100,000 businesses globally to revolutionize how they work by securely connecting their people, information and applications. Box's content ingestion solutions, Box Shuttle leverages MongoDB Atlas to accelerate a customers' migration to the cloud. Box wanted a FedRAMP-ready multi-cloud managed cloud database to support high throughput and horizontal scale by [sorting] (ph) large data sets. One of the largest supermarket chains in the United States selected Atlas and Atlas Search to power its enterprise promotions engine. The engine gives customers immediate access to promotions and coupons, while shopping at any one of its thousands of stores across the US. With Atlas Search, the company was able to modernize the data structure so that developers can make more updates more quickly and use multidimensional array lookups to run 5 million cruise per day faster. Insulet Corporation is an innovative medical device company dedicated to simplifying life for people with diabetes. Insulet's flagship product, Omnipod, is the first tubeless automated insulin delivery system that is helping people with diabetes lead better lives. Insulet migrated to MongoDB Atlas to reduce costs while simplifying the complexity of mission-critical database management, configuration, upgrades and scale without business interruption while having HIPAA, PII and PCI compliance protection. In summary, we had another excellent quarter. We are seeing continued strong momentum because we're solving one of the most important problems impeding innovation namely the challenges of working with data. We are more optimistic than ever about our prospects and we'll continue investing and executing to capture the large market opportunity ahead of us. With that, here's Michael.

Thanks, Dev. As mentioned, we delivered another strong performance in the fourth quarter, both financially and operationally. I'll begin with a detailed review of our fourth quarter results and then finish with our outlook for the first quarter and full fiscal year 2023. First, I'll start with our fourth quarter results. Total revenue in the quarter was $266.5 million, up 56% year-over-year. Subscription revenue, $258.2 million, up 58% year-over-year and professional services revenue was $8.3 million, up 17% year-over-year. It was a very strong quarter across the board, and we exceeded our expectations for both Atlas and Enterprise Advanced. Overall, Atlas' strong performance continues to be the largest contributor to our growth. Atlas grew 85% in the quarter compared to the previous year and represents 58% of total revenue compared to 49% in the fourth quarter of fiscal 2021 and 58% last quarter. On a sequential basis, this quarter's strong Atlas revenue performance was driven in part by the exceptionally high in-quarter expansion of existing customers that we experienced and previously called out in Q3. Simply put, strong in-quarter expansion benefits, not just the revenue and the completed quarter, but also the revenue in the following quarter because the new quarter starts with a higher beginning run rate. In Q4, we experienced strong in-quarter expansion of existing customers that was in line with historical trends versus the exceptionally high growth rates we experienced in Q3. Enterprise Advanced had a particularly strong quarter. An important driver of the strength of EA is the success we are seeing in our large, high potential accounts. As a reminder, we provide incremental resources to some of our most promising customers in order to accelerate the adoption of MongoDB. A number of these high potential accounts are primarily using EA, and we had a strong new business quarter with them in Q4. During the fourth quarter, we again grew our customer base by over 2,000 customers sequentially, bringing our total customer count to over 33,000, which is up from over 24,800 in the year ago period. Of our total customer count, over 4,400 are direct sales customers, which compares to over 3,000 in the year ago period. As a reminder, our direct customer count growth is driven by customers who are net new to our platform as well as self-serve customers with whom we've now established a direct sales relationship. The growth in our total customer count is being driven in large part by Atlas, which had over 31,500 customers at the end of the quarter, compared to over 23,300 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 1,307 customers with at least $100,000 in ARR and annualized MRR, which is up from 975 in the year ago period. As Dev mentioned, we ended the year with 164 customers with at least $1 million in ARR and annualized MRR, which is up from 98 in the year ago period. The continued strong growth in our $100,000 and $1 million-plus annualized spend is an indication of the success of our land and expand strategy and the fact that we are increasingly becoming a strategic platform for our customers. Moving down the income statement, I'll be discussing our results on a non-GAAP basis unless otherwise noted. Gross profit in the fourth quarter was $196.6 million, representing a gross margin of 74%, which is up from last quarter and up from 72% in the year-ago period. Our loss from operations was $1.3 million or a negative 1% operating margin for the fourth quarter compared to a negative 9% margin in the year-ago period. Our outperformance versus our operating loss guidance was primarily driven by our revenue outperformance. Net loss in the fourth quarter was $6.3 million or $0.09 per share based on 67 million weighted average shares outstanding. This compares to a loss of $19.9 million or $0.33 per share on 60.5 million weighted average shares outstanding in the year-ago period. Turning to the balance sheet and cash flow. We ended the fourth quarter with $1.8 billion in cash, cash equivalents, short-term investments and restricted cash. This quarter, we saw strong sequential growth in deferred revenue, driven by the strength of Enterprise Advanced, given EA contracts are predominantly billed annually in advance. As we've discussed in the past, Q4 is the seasonally strongest quarter for our EA installed base. As a reminder, in Q3, we noted that our deferred revenue benefited from several very large Atlas early renewals. We did not see a similar impact in Q4, but would like to reiterate that some of those large deals that were new early in Q3 were originally scheduled to renew in Q1. Operating cash flow in the quarter was positive $22.3 million. After taking into consideration approximately $5.5 million in capital expenditures and principal repayments of finance lease liabilities, free cash flow was positive $16.8 million in the quarter. This compares to negative free cash flow of $20.7 million in the fourth quarter of fiscal 2021. For the full fiscal year 2022, we had positive operating cash flow of $7 million and negative free cash flow of $6.7 million. While we have had positive operating cash flow quarters before, this is the first full year in our company's history that we generated cash from operations. I'd now like to turn to our outlook for the first quarter and full fiscal year 2023. Please note that the guidance provided for fiscal year 2023 include certain refinements to our non-GAAP financial measures for expenses related to stock-based compensation to more accurately to take the underlying business results each quarter. For comparative purposes, we've provided a historical reconciliation of these updated measures in our earnings release. For the first quarter, we expect revenue to be in the range of $263 million to $267 million. We expect non-GAAP loss from operations to be $5 million to $2 million and non-GAAP net loss per share to be in the range of $0.12 to $0.08 based on 67.7 million weighted average shares outstanding. For the full fiscal year 2023, we expect revenue to be in the range of $1.151 billion to $1.181 billion. For the full fiscal year 2023, we expect non-GAAP loss from operations to be $22 million to $7 million and non-GAAP net loss per share to be in the range of $0.51 to $0.29 based on 68.7 million weighted average shares outstanding. Our strong guidance for fiscal 2023 reflects our underlying confidence in our market opportunity and our ability to deliver strong growth at significant scale. Let me provide some incremental context around our guidance. In Q1, at the midpoint of our guidance, we expect to see a slight sequential revenue decline as Q1 is typically a lower new business quarter for Enterprise Advanced in Q4. As a reminder, EA revenue recognition under ASC 606 is disproportionately affected by the upfront term license component. In addition, as we've discussed in the past, Atlas' sequential growth in Q1 is lower compared to other quarters, driven by seasonal factors impacting consumption, most notably the fact that there are simply fewer calendar days in Q1 than in other quarters. Let me also discuss how we are factoring the impact of the COVID-19 pandemic into our fiscal year 2023 guidance. First, unlike in fiscal 2021 and fiscal 2022, we do not assume any impact of the pandemic on our revenue performance in fiscal 2023. Despite the ongoing uncertainty related to the pandemic, our performance over the last two years gives us confidence and our ability to execute in this environment. In other words, our guidance reflects that we have more confidence operating in the current environment than in either the last two years. Second, on the expense side. Our guidance anticipates the normalization of travel event and office expenses as COVID-19 restrictions continue to relax. We have previously expected a normalization in the second half of fiscal 2022 but the spread of the Delta and Omicron variants delayed the return-to-office plans and reduced employee travel. As a result, our travel, event and office expenses in fiscal 2022 were only modestly higher than in fiscal 2021 and well below our initial expectation. However, we now expect normalization starting in Q2, and we anticipate an incremental $45 million to $55 million in travel, events and office expenses in fiscal 2023. To summarize, MongoDB delivered excellent fourth quarter results, we continue acquiring new customers at a strong pace, and our revenue growth is a testament to the breadth of platform adoption and our increasing strategic importance to our customers. We remain convinced that we're in the early innings of pursuing our large market opportunity. With that, we'd like to open it up to questions. Operator?

Thank you. [Operator Instructions] The first question comes from Kash Rangan with Goldman Sachs. Please go ahead.

Congrats on the quarter. I just want to clarify the seasonality comment, Michael that you made with respect to Atlas. So we're merely talking about it sequentially only because Atlas is a much larger business today than it was exactly a year ago going into Q1, or are we actually calling out any structural changes in consumption that underlie that forecast? I also have a follow-up question. Thank you so much.

Yeah. So what we're talking about – and we called this out last year, is that Q1 for Atlas is seasonally lower because of the fewer calendar days in the quarter. It's a consumption-based model. And just obviously, you need days in order to consume and Q1 has fewer of those days. But the overall cohort behaviors as evidenced by the Q4 numbers are very strong, and we feel good about the underlying patterns.

Got it. So consumption as a structural change driver of your Atlas business is still less positive as you felt –

No change.

No change. Got it. Yeah. And one for Dev, when you look at the cohort of Atlas customers initial deployment steadily small, but then what are some of the bigger deployments on Atlas looking like that rival the more traditional on-prem deployments that give you the conviction that that some of the biggest database appointments on the planet could end up being completely cloud native and the prices two to three years from now? Thank you so much.

Yeah. Thanks, Kash. I would say just – I'd point to the seven-figure customers. The majority of those customers are on Atlas today. So we have large customers and actually even cutting-edge start-ups or running mission-critical workloads for start-ups is probably the entire business on Atlas for large customers, they're running mission-critical workloads. And so Atlas is not just for small workloads. We're seeing – and this has happened now for a number of years, we're seeing enterprises increasingly get comfortable with moving mission-critical workloads to the cloud. And one of the benefits of moving to MongoDB is that you get real optionality of not just starting on-prem and moving to the cloud, but going from one cloud provider to another. So we're seeing strong interest -- and I think we have the customer proof points to give people confidence to really move mission-critical workloads to Atlas.

Tremendous. Thank you so much.

Thank you.

Thank you, Kash. The next question comes from Sanjit Singh with Morgan Stanley. Please proceed.

Well. Thank you so much for the questions, and my congrats on another exceptional year. Dev, you mentioned that you went from $100 million to $1 in the [Technical difficulty]...

Hey, Sanjit? Hey Sanjit, we're having trouble hearing your question it's coming across very muffled.

I apologize, Dev. I think that was my headset. So question is essentially like as you scale beyond $1 billion, going from $1 billion to $2 billion, is there anything in the sort of how you go to market, how you organize the business change versus how you got to $1 billion? Typically, in prior sort of ramps of software companies, there's been a bit of a hiccup scaling past $1 billion. As this business crosses $1 billion, how do you feel about your ability to scale to $2 billion and beyond over time?

Sure. So we've constantly always tried to stay ahead of where the business is in terms of anticipating changes to our go-to-market model. I mean, as you can imagine, in the early days, we had one model, which is, a direct sales force really trying to sell to everyone. Then we introduced an inside sales team. Then we introduced self-serve. Then we've introduced the notion of having focused teams on high-end accounts. We introduced the notion of removing friction from the initial selling process to get customers on our platform more quickly. So we're always refining our go-to-market motion in anticipation of, one, how big this market is, and we try to meet customers where they are versus trying to force them to try to engage with us in one way. And you'll see us continue to do that. We're going to be focused -- increasing on verticalization. As I mentioned in the prepared remarks, we're seeing a lot of traction in key vertical industries. We're developing a deep degree of confidence around those industries. We've been having a team focused on solutions marketing for a number of years to particular industries. And you're going to see us organize our sales teams more overtime with a vertical orientation. You'll also see us going after what we call digital natives, which are kind of fast-growing mid-market customers who are building software and not just buying software. And they will obviously have a lot of value -- see a lot of value from MongoDB. So you can see us continue to push the envelope in terms of innovation. And I would argue that we have the best sales organization in enterprise software.

Well, plenty of opportunity ahead. So it sounds like, a lot to look forward to. Michael, on the guidance, you did a really great job of sort of contextualizing how you're approaching guidance this year versus last year, particularly on the element of COVID. But I guess I just have to ask, just given the geopolitical environment that we're in, particularly with exposure, potential exposure to Russia and Eastern Europe and then we also have this element of higher oil prices and what that can do for the macro environment more broadly, to what extent did you sort of incorporate those factors into this year's guidance, understanding that COVID looks hopefully, knock on wood, largely behind us.

Yeah. So thank you. So obviously we try and be thoughtful and transparent in the guidance. That said, we don't have a crystal ball for what's going to happen geopolitically or macroeconomically. I think we feel confident in our ability to execute sort of despite the uncertainty. Specifically on your point about Russia, I would just call out, we have very limited revenue in Russia for fiscal 2022, was roughly a low single-digit millions revenue contributor. We're obviously complying with all those relevant laws and regulations as they emerge. But obviously, if there are future things in the horizon that we can't contemplate we'll certainly update you, but we feel good about the outlook.

Super helpful context. Thank you, Michael and congrats.

Thank you.

Thank you, Sanjit. The next question comes from Raimo Lenschow with Barclays. Please proceed.

Thank you. Dev, could you speak a little bit to the relationship with the big hyperscalers? It looked like the deals influenced by them kind of shot up quite a bit, like -- and obviously, this funny relationship of coopetition. But what you saw -- what did you see there in terms of like how they are interacting with you and how that relationship is changing over time? And then I have one follow-on.

Sure. The basis of our relation with the cloud providers is really, first and foremost, based on the strong product markets of MongoDB. MongoDB is incredibly popular and the popularity spans all major cloud providers. I think what we have shown first with Google as we started working with them very closely, given their ambitions to grow their business quickly is that we could partner effectively and help them acquire a lot of new customers, a lot of new workloads onto their platform. This did not go unnoticed by some of the other cloud providers, and we started going deeper with AWS. As people may remember, in early 2018, AWS introduced a competitor, a clone of MongoDB and there were some worries about how that relationship would evolve. And I'm pleased to say that I feel like the relationship has never been stronger. We have deep relationships in the field. We partner more on deals. And AWS has recognized that MongoDB drives a lot of demand to their platform. And so the relationship there is very healthy. And we're also doing a lot of business with Azure. So I would say our win rates are still very high against them when we go head to head against them. But clearly, they're good partners, and we're investing a lot in those relationships.

Yeah. Okay. And then, Michael, on the guidance, like it's really impressive to see the margin guidance, if I consider the $45 million to $55 million extra spending that we see this year, can you just talk a little bit about the other drivers that helped you achieve that?

The what -- sorry, that helped us?

So just like it does look like the internal efficiencies or the scale of the businesses that allow you to do that because that looks -- despite the spending, the outlook is actually better than what I modeled?

Yeah. No, No, we've been continuing to show meaningful operating leverage. We feel good about that. We're seeing scaling throughout the business. That said, we certainly are investing to pursue the market opportunity. That means both investments in sales and marketing and in R&D and obviously, sort of everything else to scale the business. But no, we've been really pleased both at the gross margin line with the success, given where Atlas is as a percentage of this and executing against the plan there, as well as on the bottom line. And I think that we'll continue to execute on that, but we feel really good about where we are.

Perfect. Congrats. Well done.

Thank you.

Thank you.

Thank you, Raimo. The next question comes from Phil Winslow with Credit Suisse. Please proceed.

Hi, guys. Thanks for taking my question. If we look at just an analysis of just sales efficiency, it seems that the productivity continues to rise, but you also continue to add capacity. Would give us a sense of just what you're seeing from the inside in terms of productivity and how you're thinking about this coming year in terms of just capacity adds but also productivity? Thanks.

Yes. Thanks, Phil. We feel really good about the performance and the productivity of the sales organization. It performance was broad-based. One of the traps in software sales is that you can get -- get some big deals can mask weak performance in the rest of the sales cohort. We're not seeing that. We're seeing broad-based performance across our entire sales teams across all the different theaters. So that's giving us a lot of confidence. We're adding a lot of people quickly. MongoDB is viewed as a very attractive place to come to. We believe that we really help people understand and master the art of sales. And so we've put a lot of time and effort into developing our people. We -- Because we're growing so fast, we give people tremendous opportunities for growth. So people can really grow their careers here at MongoDB and we push the envelope on innovation. So we're doing things that not many other companies are doing. And so all things put together, we feel really good about the sales organization and as a result, it's the reason why we're investing aggressively to expand the capacity of that organization.

Great and thanks, guys. Keep doing the great work

Thanks, Phil.

Thank you, Phil. The next question comes from DJ Hynes with Canaccord. Please proceed.

Hi, guys. Nice set of numbers here. Dave, we've seen a bit of an inflection in revenue per customer over the last couple of quarters. I'm wondering if that's more a function of your big customers getting bigger, right? I mean, we saw a record $100,000-plus adds -- or is it all the smaller starting Atlas customers that you've added over the last couple of years now kind of ramping to more material spend levels. I'm sure it's a bit of both, but I'd love to get some qualitative cover -- color.

Yes. In general, the expansion rates of the cohorts are very strong, but I think a lot of it is also due to mix. When we changed our -- the way we want to engage with customers, we saw a big influx of self-serve customers moving to a direct relationship. So obviously, that change in mix affected the revenue per customer number. And as things have kind of as a gone to more of a steady-state function, you're seeing those numbers stabilize. But we feel like we have a really huge embedded growth opportunity in our customer base, and that's where we're spending a lot of time with as well as acquiring new customers.

Yes. Okay. And then, Michael, my follow-up for you. I mean, obviously, the EA strength in the quarter drove the strong cash flow that we saw. As you look out to fiscal 2023, do you think Mongo can be free cash flow profitable?

Yes so – thanks for that DJ. A couple of things, I would say part of the -- so in general, it's a very strong quarter, Q4 from a cash flow perspective. I would say that's less as a result of the EA sales in and more a result of the strong Q3 inclusive of some of the pull forward that we called out previously. Typically, there is a little less in truck quarter collection from when you book business, obviously, it depends a little bit on the linearity. We haven't given specific guidance around operating cash flow positive, but I certainly do think it's noteworthy not just a strong and significant magnitude more than $20 million in Q4. But the fact that we had $7 million in positive operating cash flow for the full year I do think is noteworthy. It's not a specific milestone that we've focused on or set out, but I do think it's a positive reflection on the underlying trends of the business.

Yes, I agree. Okay. Thank you.

Thank you, DJ. The next question comes from Karl Keirstead with UBS.

Thanks a lot. Maybe two for Mike. Mike, back to the Atlas strong sequential usage growth, I'm sure you're well aware that some of your peers, snowflake confluent Datadog, that also have AWS-centric usage models called out a bit of a usage lull or unusual consumption seasonality in December, January. Did you see that? And if you -- perhaps it was offset by other drivers, or did you not? And if you didn't, what makes your model different from those peers? Thank you.

Yes. Thanks, Karl. So no, we saw a very strong behavior in Q4. The cohort expansion was in line with historical trends. So nothing sort of abnormal or atypical there. It was a strong quarter in Q4, as we mentioned, in part because the beginning run rate was higher given the exceptionally high expansion in Q3, but Q4 itself behave pretty normally. So I think it doesn't like fit the patterns that you're describing. Hard for me to speculate exactly all the reasons why as it relates to those other businesses, other than the fact that from the database standpoint, that it sort of has an always on component to it, for lack of a better phrase as opposed to something that is a specific...

Episodic.

Yes, episodic or a query -- analytics query or batch-query driven basis.

Yes. Okay. That's perfectly clear. Thanks for that, Mike. And then my follow-up, I just want to be crystal clear on what you're conveying when you say that you're not assuming a pandemic impact in your fiscal '23 guidance. Mike, are you really saying that you're guiding less conservatively going forward, and therefore, implying that perhaps we should not be thinking that the beat cadence will maintain at the level you've put up in the last two to three quarters?

Yes. The way I would think about it Karl, is that our guidance philosophy hasn't changed, but I think our perception of the uncertainty or risk of the environment has changed and given how well we've operated over the course of the last two years of the pandemic, it would be hard for us. Despite the uncertainty that still exists, I think we just have a lot of confidence that we can execute in that environment, and that hasn't been the case the last two March's when we've provided that guidance. So, I wouldn't describe it as a change in philosophy or a change in conservatism, but I think it's just sort of reacting to the facts as we have them and less risk and less uncertainty than we've had previously.

Got it. Okay. That’s very clear and congrats the whole team on the great results.

Thanks.

Thank you, Karl. The next question comes from Brent Bracelin with Piper Sandler. Please proceed.

Thanks for taking question here. Michael, it certainly is impressive to hear all this talk about positive free cash flow and positive cash from operations. I guess, as you think about the guide for next year, clearly much better than when what we had modeled from an operating perspective. Where do you expect to see the most operating efficiencies coming from in the coming year? And then, Dev, if you could talk a little bit about Atlas? The usage trends per customer are showing the highest growth rate that we've seen in three years. I'm just wondering here if that's seasonally strong or do you think this is just tied to a broader adoption, broader number of customers standardizing the platform? Thanks.

Yes. Thanks, Brett. On the first part of the question, I don't think that there's any material skew sort of one way or other. If you look across the board, I think we'll continue to show progress overall, and that will come from sales and marketing, R&D and then overall, the rest of the organization in G&A. So we're not intentionally trying to skew that in any particular way. As Dave mentioned, we feel like we are still quite thin on the footprint coverage. And so we're trying to expand sales and marketing as rapidly as we responsibly can just to make sure that we're in as many conversations and customer dialogue as possible. And then given the breadth of the product road map and the returns that we've been getting on those investments, we think that it's prudent to invest in those as well. So there's not one particular lever that we're looking to sort of disproportionate incrementally scale. But you'll see scaling in aggregate, as you can see in the results and in the guide. And then, Dev, do you want to talk about the other.

Yes. So Brent, on your question on usage trends, whether it's seasonal or there's some other things going on. I would say it’s definitely the latter. We are definitely seeing broader adoption of Atlas by customers. We're definitely adding more customers and more workloads to Atlas. And I'd also say the mission criticality of those workloads is increasing from, say, four or five years ago to today where people are now running major elements of their infrastructure, major elements of their business on our platform. And these are not applications that you turn off or slow down. And I think that's why you're seeing the usage strength as we've observed.

Yes, I would just add, Brent, I'm not exactly sure which math you're doing, but if you're looking at sort of Atlas revenue -- average Atlas revenue for average Atlas customer, part of that today's point, will very specifically come from the fact that we're seeing increased adoption of Atlas among direct sales customers, right, which will be at a higher spending level than self-serve customers. And so that's really more of an output rather than an input. Again, we run the business on a channel basis, and that's a little bit of what's happening kind of below the surface of the math that you might be doing.

Helpful color. Great to see the momentum. Thanks

Thank you, Brent. The next question comes from Ittai Kidron with Oppenheimer. Please proceed.

Thanks. Hey, guys. Great quarter. Dev, I want to go to the macro environment. I know the events in Russia and Ukraine are on no more than two weeks old, but I'm just kind of wondering if your discussions, I'm sure you had a few of them, with customers in Europe where there's greater concern that the continent will go into recession or several companies will go into a recession over there. Is there any change in the tone in the discussion and that investment planning? Are things getting allengated as far as deal closings? Any color that will help us understand what the state of mind is over there right now, of course, outside of Ukraine and Russia?

Yes. Outside of UK and Russia, we see no change. We feel really good about Q1 as for the guidance, and we look at this on a daily and weekly basis, and we're seeing no change.

Very good. Thanks.

Thank you, Ittai. The next question comes from Rishi Jaluria with RBC. Please proceed.

Oh, wonderful. Hi, Dev. Hi, Michael. Thanks so much for taking my question. Two -- just two on my end. First, I wanted to start with the serverless offering, which is in preview mode. Can you talk a little bit about how is customer feedback and early adopter feedback been? How to think about the long-term impact of this starts to see real adoption? And maybe help us understand some use cases that you see for serverless versus the core Atlas? And then I've got a follow-up.

Sure. So the whole notion of serverless is to essentially abstract the way the need to do capacity planning that people can basically connect to our database, start using it and not have to worry about it anymore in the database to just scale up and down based on the needs of the application. And so the early feedback has been incredibly positive. We're seeing a lot of interest. We have a lot of people using it today. We're getting great customer feedback. And you'll see us continue to invest aggressively on serverless. And we look -- we obviously will have our own dedicated offerings as well as serverless. But over time, we think service will become a more meaningful part of the business. But we're super excited by the feedback so far.

All right. Great. And then I wanted to go into the NRR. Showing 120%-plus NRR at $1 billion and ARR is really impressive. Can you talk a little bit about what are kind of some of the drivers of being able to maintain this level of NRR at the scale? Is it a function of expanding workloads, new use cases, upmarket momentum, lower churn. Maybe walk us through a few of the drivers for keeping it up and how to think of that metric going forward? Thanks.

Yes. So we believe that we have built a very durable business. And a big reason for that is we really focused on acquiring workloads and acquiring customers and acquiring workloads in those customer accounts. And unlike other businesses where you can grow very, very quickly because you just basically manage a lot of data. We -- our unit of measure in terms of account penetration is the number of apps or number of workloads. So they do take time. No one's going to move 100 workloads overnight, but you have a great opportunity because we are so fractionally penetrated in even our existing accounts even though they may be large customers, and they're spending a lot of money with us, there's still thousands of apps that we can win, whether they're new apps or building or existing apps that they want to modernize. And so -- we also put a lot of focus on making sure our customers are successful, really ensuring that the customers get value very, very quickly from our platform, which obviously affects retention rates and churn. And so the degree to which we do that well, that also affects our net expansion rates. And so I think those two factors, along with adding new customers in general to our platform really help keep that high net retention rate.

All right. Great. Thank you.

Thank you, Rishi. The next question comes from Tyler Radke with Citi. Please proceed.

Hey, thanks for taking the question. Obviously, the Atlas revenue was really impressive this quarter. But I think the Enterprise Advanced revenue really stood out to me this quarter. It grew seven points faster than you saw last quarter where there was kind of a pull-forward dynamic. I was wondering if you could just kind of unpack the drivers of the EA performance this quarter. Was it primarily driven by an uptick in new customers? And given that EA customers tend to be larger companies, are you seeing any change in terms of the mix of legacy or traditional database migrations? Thanks.

Sure. Yeah. As we mentioned and as I commented on in the prepared remarks, it was obviously a very strong Enterprise Advance quarter. Q4 historically has been the strongest EA renewal base. We clearly demonstrated and observed very strong demand for more EA workloads. Most of the -- just if you step back more generically, most sales of EA are to existing EA customers, right, who are expanding incremental workloads. And in addition as we called out these sorts of focused accounts that we're putting more resources around, a number of them are primarily EA accounts. And we had a lot of success, deepening our penetration with those customers. And given that Q4 is a large renewal base, that's often a good time when that takes place. Certainly, EA will be volatile quarter-to-quarter given 606, but it continues to be very strong. And again, our goal is really just to give the customer’s choice and meet them wherever they are in their cloud journey.

Great. And maybe a question for Dave, so you've released a lot of kind of interesting new capabilities around support for time series and in streaming, I'm just curious, how you're seeing kind of the up-tick in operational intelligence or real-time analytics within your customer base? And how impactful is that going to be in terms of growing existing accounts going forward? Thanks.

Oh! So we believe that the trend of applications are getting smarter and they get smarter by embedding more data and more real-time data and more analytics into their into the application is a trend that's going to increase dramatically, which is why we believe we're well setup to take advantage of that trend. One, by definition, we're an operational to platform, but that's where you get the live data. Two, we have a distributed platform, so you can segregate nodes, one for essentially writing the transaction and the other notes for reading data. So this enables you to do that without impacting user performance. Three, we came out with capabilities, where if you want to do a sophisticated query, obviously, operational data is constantly changing. You can take a snapshot of the data at some point in time and run a query and get that result and embed that result back into the application. So we're embedding more and more capabilities into our platform to enable developers to build smarter applications. And as I mentioned, with the advent of faster networks, faster chips, better algorithms, the sophistication of use cases are only going to increase. And we feel like, we'll be -- we're really well positioned to take advantage of that. And you'll see a lot of our investments go in that direction.

Thank you.

Thank you, Tyler. The next question comes from Fred Havemeyer with Macquarie. Please proceed.

Hey, thank you. In your prepared remarks, Dev, you were mentioning it was [Indiscernible] here was scaling from just MongoDB community addition on to MongoDB Atlas. And I got me thinking, Dev, would either you or Michael will be able to provide any context on some of the larger Atlas customers are generally MongoDB customers? And how many of them began is just kind of like community addition start-ups and scaled into some of your larger and more material accounts?

Well, in the early days, all of them came from community. And so – and what they were attracted by was the notion of really outsourcing all the undifferentiated work of provisioning, configuring and managing a distributed database and essentially focusing on building great apps that transform their business. What we've done over the last few years has really enabled a free tier of users on Atlas. And so they essentially can try and test and play with Atlas. And then we get those customers to migrate into our paid offerings, and we're starting to see increased success with that motion where people start our free tier because they don't even want to – they just want to work on the cloud. And then very quickly, they start using level of usage and interest ends up getting them to a paid offering. So that's another trend that we're seeing that's emerged. And so obviously, it all starts with the product markets that MongoDB, the document model, the way we just make it so easy to build applications quickly, the way we enable developers to innovate fast. And obviously, Atlas just allows us to – allows them to essentially focus on what's important and leave all the plumbing to us.

Yeah. I would just add that Atlas self-serve, whether it's free tiered or paid, it's sort of the modern more contemporary version of downloading community server and managing it yourself. And as we pointed out before, more than 50% of Atlas ARR was self-serve source, right? So it's just sort of reinforcing that same motion that Dev was describing.

Okay. Thank you for the context there. And I think I'm one of those free-tier users. Eventually, I'll scale up. Second question I wanted to ask about is – on thank you. I'll head over to your office and knock on the door and ask for some help, just like back in the old days. I'd also like to ask about cash in the balance sheet and with generating some free cash flow this year, material free cash flow this year. I wanted to ask how, Michael, are you thinking about cash deployment within MongoDB? Generally, are you thinking about – just really, how are you thinking about cash in your balance sheet? And how would you characterize MongoDB's M&A appetite if you have one?

Yeah. So in general, I would say that, we've got an appropriate, and very healthy cash balance with $1.8 billion. It gives us the confidence to think long-term Obviously, we're continuing to make operating leverage progress. But as we see needs or opportunities or high-return investments, we're able to make those. I think specifically, from an M&A perspective will be opportunistic. We feel like we've got a lot of organic running room to go, but we'll certainly be opportunistic as needed. Dev, I don't know if there's anything you want to add to that?

Yeah. I would say that, we obviously stay very closely ground in terms of what's happening in the data infrastructure space. There's a lot of – there’s a lot of activity in the start-up ecosystem. But as Michael mentioned, we feel like we have a lot of opportunity with our core offerings. We have done some acquisitions in the past. They tend to be smaller, more surgical acquisitions. And if we do end up doing anything, it's probably more in that category than anything meaningful.

Thanks for the context. And congratulations on a strong quarter.

Thanks, Fred.

Thank you, Fred. The next question comes from Steve Koenig with SMBC. Please proceed.

Hi, gentlemen. Just one question today from me. Last week, it was pretty surprising to see from Snowflake, how performance improvements in their platform negatively impacted effective pricing and the revenue outlook. And I don't think I've ever seen that either working in or covering database companies. And so I'm wondering, without commenting on them, tell me about maybe your model why won't performance improvements negatively impact you guys? And is there a difference between operation and analytic data stores that's relevant here? Thank you very much.

Yes. Thanks, Steve, for your question. I would say the big difference is our unit of work is the application of the workload. I would say other companies unit of work is the amount of data they have to ingest. And I think when people think about building new applications, there's obviously some sort of business case, essentially some funding to solve some important business problem or seek some new business opportunity. So they think about that investment very differently than the amount of data that we're constantly collecting. So as you can imagine, it's not surprising to me that some customers, when they see their bills escalate probably frustrated at the rate and pace of how their bills are escalating, whereas as customers are building new applications on our platform for them, that's a new decision on a new use case and for them, it makes sense to obviously invest the appropriate resources and technologies to deliver on that use case. So I think that's the big difference that you're seeing. And we have made performance improvements in our platform, but it doesn't show up in the way, I think, it does for other companies. And I think we feel very, very comfortable about the value proposition we’re our offering to our customers.

Awesome. Great. Thanks Dev.

Thanks, Steve.

Thank you, Steve. The next question comes from Mike Cikos with Needham & Co. Please proceed.

Hey, guys. Thanks for getting me on for a couple of questions here. I did just want to walk through the guidance real quick for Michael. If I'm thinking about that revenue guidance that you guys provided for the full year of fiscal 2023 and parse out Q1, but is that implied deceleration? Is that just -- should we be thinking about that as just more difficult year-on-year comps? Is that -- or are there any other puts or takes to that? And then the second point, gross margins has really just held up phenomenally given the amount of exposure coming in from Atlas as it becomes a more meaningful driver to total revenue. Should we still expect some gross margin erosion going forward as that Atlas becomes a larger piece because of the associated infrastructure component?

Sure. You think about your gross margin, that's the first question, that was...

Guidance. Guidance.

Guidance. Yes. Yeah, yeah. So -- thank you. No, I think overall, on the guide, we feel like it's a very strong outlook and we're guiding to significant durable growth at scale. I would say -- two key factors to point out. One is we continue to expect more Atlas over time. And so less 606 impact of EA. Obviously, over a 12-month period, that also comes out in the wash. But given that upfront term license component piece as more of the business shifts from EA to Atlas over time, we expect to have less of that. And then, just the second point would be what you called out, which is the strong Atlas performance, particularly in the back half of the year sets up a very significant compare. And then on the gross margins, yes, we've been super pleased with how we've done on our gross margin game plan. We've executed better than we had thought we could if we thought that was one this size and scale and the 58% of revenue, you'd say we have 74% non-GAAP gross margins or 77% non-GAAP subscription margins, I would have doubted that we'd be able to execute that. I don't think we're prepared to call the bottom, but I do think that we are closing in on one given the strong performance of our optimization program.

Thank you very much for that. I hope I didn't mean to sound like the revenue guidance is not strong here. I just wanted to make sure I understood the puts and takes for the full year. And just one more.

I understand.

One more, if I could. I think, the last time we received an update as far as incremental OpEx. And I'm thinking about that $45 million to $55 million that we're talking to as commercial activity normalizes, right? For the, I guess, backwards looking here, but for fiscal 2022, I think we might have been expecting, call it, $9 million to $12 million based on the most recent data point we had. I just wanted to see how the year ended up finishing up versus that $9 million to $12 million, I guess, guideposts that we had previously had when thinking through the Q4 upside.

Yes. I think what we've talked about it, we said in the end fiscal 2022 came out broadly in line with our fiscal 2021 spending, and we had expected to spend much more in fiscal 2022 on the sort of I'll call them, COVID-related expenses for lack of a better phrase. And just given the environment and backdrop, we did not see as much activity there.

Makes a ton of sense. Thank you very much for getting me on guys. I really do appreciate it.

Thanks, Mike.

No problem

Thank you, Mike. That concludes the Q&A session. I'll pass the conference back to MongoDB's CEO, Dev Ittycheria, for additional remarks.

Thanks, Selena. I think it's fair to say that we had an excellent quarter. We're seeing to see strong momentum. We believe that we're solving fundamental problems and addressing fundamental pros that developers have and the value of our platform, offering one unified integrated way to solve and address many use cases that very well played in the marketplace. So -- and that's evidenced in our continued strong customer growth. So with that, I want to thank everyone for joining us today, and we'll talk to you soon. Take care. Bye-bye.

That concludes the MongoDB Fourth Quarter FY 2022 Earnings Call. Thank you for your participation. You may now disconnect your lines.