Operator: Good day and thank you for standing by. Welcome to the MongoDB Fiscal Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today Brian Denyeau from ICR.

Brian Denyeau: Thank you Josh. Good afternoon and thank you for joining us today to review MongoDB’s fourth quarter fiscal 2023 financial results, which we announced in our press release issued at the close of the 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 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 and including the results of operations and clients that have caused 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 the quarterly report on Form 10-Q for the quarter ended October 31, 2022 followed the SEC on December 8, 2022. Any forward-looking statements made on this call reflect our views only as of today and we undertake no obligation to update them except as required by law. 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 their most directly comparable GAAP financial measure. And with that, I’d like to turn the call over to Dev.

Dev Ittycheria: Thank you, Brian. Thank you to everyone for joining us today. I will start by reviewing our fourth quarter results before giving you a broader company update. Before I do that, I want to take a moment to acknowledge that today’s International Women’s Day. And in particular I want to acknowledge that all the amazing women at MongoDB who make us a very special company. Now turning to our results. We generated revenue of $361 million, a 36% year-over-year increase and above the high end of our guidance. Atlas revenue grew 50% year-over-year, representing 65% of revenue and we had another strong quarter of customer growth ending the quarter with over 40,800 customers. Overall, we continue to execute well in Q4 despite a challenging macro environment.

Before we dive into the quarter, let me remind you of the framework through how we operate the business and analyze our performance. Our principal focus is acquiring — or said another way new applications, which is the biggest driver of our long-term growth. In our market, it’s important to understand that the unit of competition is the workload, getting both new and existing customers to deploy new workflows in our data platform is our overarching goal. Once the world has been onboarded its consumption growth is not something we can meaningfully influence. Some workloads will grow faster than others depending on the underlying business drivers for their specific application, the macro environment, seasonality and other factors. While we cannot control the rate of growth of existing workloads, we do know workloads typically grow over time.

So as long as we keep acquiring new workloads at a healthy rate, we are well-positioned for the long run. With that, let’s discuss what we saw in Q4. We had another strong quarter of new business acquisition, adding approximately 500 net new direct sales customers and we continue to have success in new workloads in existing accounts. Unlike many of our peers, we have not seen the macro environment impact our ability to win new business. We believe this is due to a combination of the mission criticality of our platform, strong ROI and the excellent job our go-to-market teams have done navigating incremental hurdles and approvals in sales cycles. Turning to Atlas consumption trends. Q4 was below our expectations. In our Q3 call, we told you we got off to a solid start to Q4 and that we had expected to see a usage-driven holiday slowdown in the back half of Q4.

This slowdown did happen, but it was more pronounced than we had anticipated impacting our Q4 results as well as our outlook. Consumption growth in February improved relative to December and January and was broadly in line with the average growth we’ve seen since the macro slowdown began in Q2 of last year. We continue to believe the recent fluctuations in consumption trends are largely driven by broad-based macroeconomic trends as they are occurring across different geographies, vertical markets and customer segments. Finally, retention rates remained incredibly strong in Q4, which exemplifies the value customers receive from MongoDB. As I look forward into FY 2024 and beyond, I’m excited about the opportunity I see ahead of us. My enthusiasm ultimately comes from our customers.

Our value proposition and product vision clearly resonate given our new business activity, our account of 100,000-plus and million-plus customers, and our own customer conversations. For example, some of our largest and most sophisticated customers plan to meaningfully increase their MongoDB deployments. After working with them for a number of years, two global financial institutions are preparing to deploy hundreds of applications both new and existing on Atlas in the coming quarters. It’s important to understand that large enterprise customers take a comprehensive and long-term view when deciding to change their operational data platform standards given the scale and complexity of their business. Both customers chose to standardize on MongoDB after a rigorous review of all available choices based on developer preference, the optionality we provide on where they can run their workloads and they’re confident that we can address their demanding requirements both today and tomorrow.

To remind everyone the core drivers for MongoDB’s adopted include: One, customers increasingly find legacy technology and limits how quickly they can respond to changing business needs and recognize that the cost of not addressing this issue now frequently exceeds the near-term friction of making a change. A senior IT executive in the travel industry recently told us that most of the Oracle estate will transition to MongoDB. Two, MongoDB’s developer platform enables customers to reduce the complexity and the cost of the technology stack by eliminating point solutions and consolidating workloads onto a single platform. This is especially relevant in the current macro environment where customers are looking to reduce the number of vendors they work with to rationalize their infrastructure and operating costs.

Two of Europe’s largest retailers are in the process of ripping out a myriad of legacy and niche systems and replacing the large mission critical deployments of Atlas Service and Atlas Device Link. Finally, customers understand that their business strategy directly expressed through their software applications they develop to build new products and services as well as to run their business. MongoDB’s modern platform enables them to increase their pace of innovation to deliver better business performance. At a recent customer advisory board meeting, a gaming industry executive said to its peers they are standardizing on MongoDB because simply put, we make it so easy for developers to build great applications. Customer conversations like this and the ongoing strength of our new business performance makes us incredibly confident in our long-term opportunity.

We will continue to invest appropriately as we believe it will create the most long-term value for the business. At the same time, we recognize we are operating in a different macro environment. This presents us with an opportunity to assess our org structure, systems and processes to ensure we are effective and efficient as possible. In fiscal 2024, we will raise the bar on our performance, enabling us to further capitalize on our long-term opportunity when macroeconomic conditions normalize. To that end, we are making a number of changes this year. We will significantly slow down our overall headcount growth in fiscal 2023. We grew headcount by 30%. We expect this number to be in the single digits in FY 2024. We remain focused in orienting all our go-to-market activities around our North Star new workload acquisition.

We continue to drive cross-functional coordination to build the required systems, tools and compensation structure to acquire workloads more efficiently. We will continue to grow our quota-carrying rep count and as always, prioritize investments in regions and channels where we see the best returns. We will also reduce investments in some supporting areas. In our product and engineering organizations, we’ll focus on our key priorities, including enhancing our core database and adding to our search and time series capabilities, as well as planting seeds for future growth areas. In G&A, the focus is investing in systems that can deliver automation, repeatability and scalability to drive further efficiency improvements. Now, I’d like to spend a few minutes reviewing the adoption trends of MongoDB across our customer base.

We have many customers, including companies such as Avalara, Electrolux, Bosch and Telefónica Tech who have achieved meaningful cost savings by using MongoDB. Telefónica Tech, a subsidiary of Telefónica S.A. spearheads Telefónica digital transformation service and technology and connectivity. They needed a platform with the capacity to outpace the ever-increasing device usage for 30 million IoT devices that run on their managed connectivity platform. They selected MongoDB as their primary database to deliver uninterrupted user service, while reducing expenses by 40%. Customers across different industries and geographies including Cathay Pacific, Iron Mountain, Polaris and Midland Credit Management are running mission-critical projects on MongoDB Atlas, leveraging the full power of a developer data platform.

Iron Mountain turned to MongoDB to support the expansion from providing traditional physical asset storage and shredding solutions into offering an intelligent document processing solution. Iron Mountain needed an agile solution to quickly respond to customer requests and MongoDB’s document model gives them the ability to ingest data quickly with a flexible schema. MongoDB’s developer data platform enables Iron Mountain’s customers to search through tens of millions of documents with queries coming back in milliseconds. Many customers have migrated from legacy technology or clones of MongoDB, including Amadeus, Penske and Clear, a company that helps millions of Indian citizens with their tax returns. Penske, one of the world’s largest transportation services companies selected MongoDB Atlas to modernize its customer notification platform that was originally built on relational technology which was too rigid to provide the rapid iterative development that Penske required.

After migrating to MongoDB Atlas, Penske experienced increased developer productivity and the team was able to scale seamlessly, resulting in improved platform performance regardless of spikes in traffic and higher overall customer satisfaction. In summary, I am pleased with our execution in the fourth quarter. We are excited and energized about our long-term prospects. I’ve lived through a number of bad macro environments in my career and I remind our team almost daily that these moments offer precious growth opportunities for frontline employees, for first-time managers, senior leaders and for the entire company. I firmly believe it is in times like these that great companies separate themselves from the pack. We intend to do just that and we will emerge from the slowdown even better positioned to pursue our goal of building a generational software company.

With that, here’s Michael.

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Michael Gordon: Thanks, Dev. As mentioned, we delivered a 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 2024. First, I’ll start with our fourth quarter results. Total revenue in the quarter was $361.3 million, up 36% year-over-year. As Dev mentioned, we continue to see a healthy environment for new business. To us, this is confirmation we remain a top priority for our customers and that our value proposition continues to stand out, even and sometimes especially in this market. Shifting to our product mix, let’s start with Atlas. Atlas grew 50% in the quarter compared to the previous year and now represents 65% of total revenue, up from 58% in the fourth quarter of fiscal 2022 and 63% last quarter.

As a reminder, we recognized Atlas revenue primarily based on customer consumption of our platform and that consumption is closely related to end-user activity of the application, which can be impacted by macroeconomic factors. Let me provide some context on Atlas consumption in the quarter. As Dev mentioned, consumption growth in Q4 was weaker than we expected. In fact, consumption growth in Q4 was the slowest quarter of the year. As a reminder, in our prior quarterly call, we noted consumption growth in Q4 was off to a solid start with November growth similar to Q3 trends. However, we also noted that we expected to experience a seasonal slowdown for the rest of the quarter, driven by lower usage of applications during the holidays. Broadly speaking, this is what happened in Q4.

However, the slowdown is more pronounced than we expected. The holiday slowdown was a global phenomenon and visible across all industries and channels. February trends showed an improvement and were in line with the average growth we’ve seen since the macro slowdown began in Q2 of last year. In addition, due to slower Atlas consumption growth during fiscal 2023, we recognized several million dollars of incremental revenue in Q4 from a small portion of our customers that reach the end of their contracts without having consumed their entire commitment. Revenue from contract expirations happens in the normal course of our business and is usually not a significant factor affecting our results. The higher level in Q4 is a function of the cumulative impact of lower consumption trends over the course of the year as well as Q4 having the largest number of customer contracts up for renewal.

Turning to Enterprise Advanced. As you know, we faced a difficult EA compare in Q4 and that is reflected in our slower year-over-year Enterprise Advanced revenue growth. However, EA once again significantly exceeded our expectations in the quarter as we continue having success selling incremental workloads into our existing EA customer base. The continued strength of EA new business is particularly notable in this environment, given that EA required an upfront commitment. Turning to customer growth. During the fourth quarter, we grew our customer base by approximately 1,700 customers sequentially, bringing our total customer count to over 40,800, which is up from over 33,000 in the year ago period. Of our total customer count, over 6,400 are direct sales customers, which compares to over 4,400 in the year ago period.

Q4 was another very strong quarter of direct customer net additions. As a reminder, our direct customer count growth is driven by customers who are net new to our platform as well as self-service customers with whom we’ve now established a direct sales relationship. The growth in our total customer count is being driven primarily by Atlas, which had over 39,300 customers at the end of the quarter compared to over 31,500 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 1,651 customers with at least $100,000 in ARR and annualized MRR, which is up from 1,307 in the year ago period.

We also finished the year with 213 customers spending $1 million or more on our platform compared to 164 a year ago. 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 $280.8 million, representing a gross margin of 78%, which is up from 74% in the year ago period. Our gross margin improvement in Q4 was positively impacted by a one-time benefit of roughly 2.5 percentage points related to one of our cloud partner contracts. We are very pleased with our gross margin progression even excluding the one-time benefit, especially in the context of Atlas representing 65% of our overall business. Our income from operations was $37.2 million, or a 10% operating margin for the fourth quarter compared to a 5% margin in the year ago period.

The primary reason for our strong operating income results versus guidance is our revenue outperformance. In addition, we benefited from significantly lower-than-expected headcount growth in the fourth quarter, as we slowed down hiring and prioritized hiring to the highest-need areas. Net income in the fourth quarter was $46.4 million, or $0.57 per share based on 80.8 million diluted weighted average shares outstanding. This compares to a net income of $8 million, or $0.10 per share on 78.7 million diluted 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. Operating cash flow in the fourth quarter was $25.9 million.

After taking into consideration approximately $2 million in capital expenditures and principal repayments of finance lease liabilities, free cash flow was $23.8 million in the quarter. This compares to free cash flow of $16.8 million in the fourth quarter of fiscal 2022. I’d now like to turn to our outlook for the first quarter and full year fiscal 2024. For the first quarter, we expect revenue to be in the range of $344 million to $348 million. We expect non-GAAP income from operations to the range of $10 million to $13 million, and non-GAAP net income per share to be in the range of $0.17 to $0.20 based on 84.3 million estimated diluted weighted average shares outstanding. For the full fiscal year 2024, we expect revenue to be in the range of $1.48 billion to $1.51 billion.

For the full fiscal year 2024, we expect non-GAAP income from operations to the range of $69 million to $84 million, and non-GAAP net income per share to the range of $0.96 to $1.10 based on 85.1 million estimated diluted weighted average shares outstanding. Note that, the non-GAAP net income per share guidance for the first quarter and full year fiscal 2024 includes a non-GAAP tax provision of approximately 20%. I’ll now provide some more color around our guidance starting with Q1. First, we expect Atlas revenue to be flat to slightly down sequentially in Q1. As a reminder, Q1 has three fewer days than Q4, which represents a revenue headwind. Second, weaker-than-expected Atlas consumption during the holidays will have a bigger impact on Q1 revenue than it did in Q4, thereby negatively impacting sequential revenue growth.

Finally, the higher than typical unused commitments that benefited Q4 revenue are making for an incrementally harder sequential compare. On a year-over-year basis, Atlas continues to face a difficult compare as we’re lapping last Q1, which is the last quarter of strong consumption growth before the macro slowdown. Second, we expect to see a meaningful sequential decline in EA revenue. As discussed in the past, Q4 is our seasonally highest quarter in terms of our EA renewal base, and our EA renewal base is an excellent indicator of our ability to win new EA business. In Q1, the base is sequentially lower, which we expect to have an impact on our ability to generate new business and the associated license revenue under ASC 606. Next, we expect operating income to decline sequentially because of the lower revenue outlook.

In addition in Q1, we see a sequential expense increase because we award annual merit compensation increases to the majority of our employees. Moving on to our full year guidance, a few things to keep in mind. We expect Atlas consumption growth to continue to be impacted by the difficult macroeconomic environment throughout fiscal 2024. Our guidance assumes consumption growth that is in line with the average consumption growth we’ve experienced since the macro slowdown began in Q2 of last year as well as what we observed in February. Moving on to EA. Similarly to Q4 of fiscal 2023, we will begin facing very difficult compares throughout fiscal 2024. We remain confident in our ability to keep upselling our EA customer base with incremental workloads but last year’s strong performance combined with the ASC 606 dynamics will represent a meaningful headwind.

In terms of our operating income guidance, the key variable to keep in mind is our headcount growth, as Dev mentioned, we’ll meaningfully slow down hiring this year, expecting to grow headcount in the single digits. However, in terms of year-over-year OpEx growth, keep in mind that we’ll also be annualizing the impact of the 30% headcount growth we experienced last year. To summarize, MongoDB delivered solid fourth quarter results in a difficult environment. Our new business performance and strong direct customer net additions indicate the robust underlying demand for our developer data platform. The continued macro uncertainty is putting pressure on Atlas consumption and we’ve incorporated that into our outlook. As a result, we are modulating our pace of investments with laser focus on key priority areas and increasing efficiency across the company while still running the business for the long-term.

With that, we’d like to open up to questions. Operator?

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Q&A Session

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Operator: Thank you. Our first question comes from Sanjit Singh with Morgan Stanley. You may proceed.

Sanjit Singh: Thank you for taking the question. Dev, I want to get an understanding of some of the factors that’s driving the weaker consumption trends. As a transactional database, I guess transaction volumes for the MongoDB applications are down. But to what extent is broader slowdown in sort of cloud transformation, cloud migration deals impacting the business? And do you see any impact of any sort of optimization customers sort of downsizing to less powerful causes as a headwind on consumption growth?

Dev Ittycheria: Thanks, Sanjit. We are going after a really large opportunity. We’re really pleased with our new business traction in terms of new customer acquisition and as well as new workload acquisition. But I do want to say that obviously, the new workloads we acquire have very little impact on near-term revenue. In terms of optimization, we’ve really seen no changes in the dynamic. The value of what we offer is tightly aligned to the value that customers see. When customers build an application they want that application to be used. They want that application to be consumed. And obviously, as it’s consumed, that drives more value for them and drives more revenue for us. Now we have seen some corner cases, where some customers under significant financial duress may in a rearchitect their MongoDB clusters to have less resilience or less scale but that obviously comes with a lot more risk.

And again, that’s not really a sustainable approach. And so in general, our retention trends are very strong and has one CTO said on the buy-side call, we are a necessity not a luxury. So, we feel good about the long-term. It’s just a function of the macro environment and the second order effects we’re seeing from our own customers.

Sanjit Singh: Yes. Well understood. I appreciate the thoughts and the color, particularly on gross retention. Just a follow-up on the commentary on February being better than the holiday slowdown in January. Is there a way a farmout how February compared to November, which seems pretty — like it seemed like a pretty good start to the quarter? Was that in line with what you saw to start November and Q3 more broadly, or is that is it the sort of underlying cohort usage below that time here?

Michael Gordon: Yes. So, one of the things that we’ll call out Sanjit is as we have more and more data on Atlas we’ve tried to expose to everyone the underlying seasonal trends that we see. So, that November period that you’re specifically asking about is consistent with the Q3 timeframe, which is one of the seasonally stronger periods. We had mentioned that the latter part of Q4. So, basically December and January tends to be slower and normally those kind of wash each other out. So, November would have been higher in line with Q3. And what we’re seeing in February is really consistent with what we’ve seen since the very beginning, so sort of the average. So, if November Q3 are a little bit on the higher side and inventory is more in line with the average, you can sort of conclude where that is.

Sanjit Singh: I appreciate the thoughts Michael. Thank you so much.

Operator: Thank you. Our next question comes from Kash Rangan with Goldman Sachs. You may proceed.

Kash Rangan: Hi, thank you very much. Congrats on the quarter. Help us understand Dev and Michael, if you will, a dichotomy between consumption growth slowing down. But at the same time at the other end of the funnel, you are adding new customers. So, help us understand why these two seems to be happening, although you would generally think that during a downturn new customers a lot of hard time making new technology decisions? That’s one. Number two when I look at Atlas customer growth in the most recent quarter that loan was up some 25%. So, how do we square that with guidance for 15% to 18% growth rate, it feels like at some point when people start to feel slightly better about the economy, these transaction volumes can pick up, case in point, you did Atlas growth which was pretty significant in the quarter, while going through consumption slowdown.

So, despite that you put up good numbers. So, help us understand how to look at the guidance in light of slowing consumption. But this time we’re modeling in a pretty significant slowdown in the overall revenue growth. Thank you so much. I hope this question still makes sense.

Dev Ittycheria: Thanks Kash. I’ll take the first one and then Mike will take your second question. With regards to the divergence between consumption usage or — versus new customer acquisition, people — just stepping back, people essentially express their business strategy through the products they build using software — or the services they build using software and as well as how they run their business. They’re striving for more efficiency, they want to capture new business opportunities, they want to respond to new threats. And obviously our platform being very modern, very flexible, highly scalable, enabling high pace of innovation is very attractive for customers to build those applications. But you have to remember most workloads start small.

So, the near-term revenue impact is also small. But over time those workloads grow and consequently, that impact is greater over time. What we’re seeing in terms of the divergence between new business and consumption is really a function of the second order effects we’re seeing with our own customer bases. As we mentioned earlier, we’re seeing transaction volumes slow, people buying less things through digital platforms, people traveling less, or maybe they’re using other products and services less than they typically have been. And so the customers themselves are not seeing their businesses grow. Consequently, their need to grow their MongoDB per clusters is not as high. And so that’s essentially the reason for the divergence in trends.