MDB Q1 Conference Call Notes

Q1 2020
89.4M total revenue Up 78% YOY Subscription up 82% YOY to 84M (incl Mlab)
~5M Mlab Revenue = ~84.4M organic revenue vs 50.1M Last year = 68.4 % organic growth
Atlas - 340% growth - 35 % revenue Compared 14 % YOY 32% Last Q - 89.4M total revenue = 31.29M Atlas Revenue

Adj operating loss 12.6M (-14%) operating margin vs (-38%) last year - Great to see
Net loss in the first quarter was $12.1 million or $0.22 per share based on 54.7 million weighted average shares outstanding. This compares to a loss of $0.37 per share on 50.4 million shares outstanding in the year-ago period. - correct me if I’m wrong but this suggests ~8% dilution for the year? Seems quite reasonable compared to some.

Strong customer growth adding 800 to end quarter with 14200 customers.
Atlas added 900 organic customers from 11400 to 12300 at the end of the quarter. I’m guessing this means they lost some Mlab customers which was expected.

Net Expansion Rate - 120% + for 17 consecutive quarter
598 customers with at least $100,000 in ARR and annualized MRR, which is up from 394 in the year-ago period. Up 51.8%
Gross Margin down to 70% vs 74% YOY due to increasing Atlas as % of revenue and Mlab lower margin. Will continue to drift modestly lower as Atlas becomes larger share of revenue.
FCF positive 2.8 M - First positive Q. Q2 cash burn will be higher - hosting conference. Atlas is usage based - less deferred revenue (up 39% YOY) ? of Atlas not counting on deferred revenue. Atlas is billed monthly rather than annual.

Expect large compares in Q3 Mlab will be included in compares in Q4. This is likely reasoning behind drop off in growth projection for 2nd half of year. Will be interesting to see guidance for Q3 next quarter. I will expect a significant raise of current guidance (~36% growth for Q3 and Q4)

Some statements that jumped out at me from the prepared remarks:

We see a significant portion of our customers gravitating towards hybrid environments with a mix of workloads on premise and in the cloud. With MongoDB, customers can run applications anywhere, in any compute environment, on the same data platform and feature set without having to rewrite any code.
Data synchronization is the single biggest challenge in building compelling mobile applications and Realm has developed a comprehensive synchronization platform that is a natural complement to MongoDB Atlas and Stitch.
We will be providing more details about our future plans for Realm and how to create value for customers at MongoDB World later this month.
Partnerships with IBM - several large deals signed
Google Cloud - integrated as first-class service in GCP platform and counts in GCP spending/billing. Google salespeople highly incentivized to sell Atlas.
Tom Killalea will become the next chairman of the board of directors (member of the board since 2015) - One of the executives who was in charge of creating and scaling AWS. Adding Archana Agarwal as a director later this summer. She’s currently the Head of Enterprise and Cloud Marketing at Atlassian where she leads global marketing for all products. - Good to see they are adding/promoting people with impressive resumes in closely related areas.

A couple highlights from the Q and A:

Question: Yes. Hi, Dev. I was wondering – there’s been a lot of, I guess, challenges in the overall infrastructure software market and, obviously, predominantly the on-premise vendors over the last couple of trends that we’ve seen over the last few weeks. I was wondering if you could share with us kind of anything you’re noticing from a deal closing environment or just kind of commentary on overall IT spending that you could share with us that you’re hearing from customers.
And also, if there is anything that you could share with us just about how you’ve seen customers respond. It doesn’t seem like AWS is offering – is gaining much traction, but just kind of, if you’ve seen – if you’ve heard from many customers about feedback and if it comes up in any customer conversations at all? Thank you.

Dev Ittycheria: Yeah. So, on the infrastructure spending environment, we feel very good about the environment. In fact, we just finished up our QBRs with our sales teams around the world and a big push is to recruit more aggressively because we see a very big market opportunity in front of us. And so, we feel very good about our positioning. We feel very good about our competitive advantage against all the alternatives and substitutes out there. We’re seeing more and more customers adopt us for mission-critical workloads and it’s not just a North American phenomena. We’re seeing that in EMEA, LatAm and Asia-Pacific region. So, we feel really good about the trends that we see.
And part of that reason is that, if you think about what’s happening in the macro environment, the way apps are being built and the decomposition of MongoDB Atlas into micro services, the move to the cloud, and the need for a hybrid environment, the desire to consume infrastructure-as-a-service, the desire to support a multi-cloud environment all play to our strengths. And I think the recognition that the document model is the easiest way to work with data. So, we feel really good about that.
And while this is a big market, obviously, it attracts a lot of big competitors. We don’t see any changes in the competitive environment. And I must remind you that this is not a winner-take-all market. So, other vendors don’t have to die for us to win and we feel very good about the market trends and the opportunity in front of us.

Me - Loved the answer here, clearly Dev knows exactly where they are headed and feels confident about their opportunity going forward. Seemed sincere and handled Q and A portion very well.

Question: Great. Thanks very much. Dev, maybe sticking with Atlas first, can you give us a sense of what the net expansion rate looks like in that business versus the overall business maybe on a cohort perspective?
Dev Ittycheria: Yeah. The net expansion rate is definitely higher than our overall blended business. We don’t publish that number, but it’s just a function of the fact that customers can consume infrastructure more quickly. They don’t have to go provision more internal capacity or deal with any of the operational issues of provisioning more capacity. And so, we find that the net expansion rates are higher than our blended rate that we’ve disclosed, which is, for the 17 quarters in a row, has been over 120%.

Question: Hi. This is Clarke Jeffries on the call for Brent. Maybe, Dev, for you, as you start to invest in these technologies and maybe outside of the core document database, what are the core considerations that you’re mulling over as you choose technology? What do you see as having the lasting benefit to the developer? Do you see there being plenty of opportunity to be tactical on just really the pain points of the legacy technology?
Dev Ittycheria: Yeah. Our vision is that we want MongoDB to be the best platform to build modern data applications, and so that’s our overriding strategy. I will tell you that I don’t want to steal our thunder from MongoDB World, but we’ll be making some very interesting announcements there. As I mentioned, we’ll be talking about how we plan to integrate Realm into the core platform and a bunch of other new announcements. But it’s all in the spirit of making MongoDB truly the best platform to build modern applications.

I thought the report was very positive overall, lots to like. 68% organic growth very impressive. Growth rate currently higher than ESTC (63%) and (a flip flop from last year) and stock price has followed. Management was well spoken and confident. The realm acquisition seems to make a lot of sense and great to see they are already going to be announcing details of their plans for it. Customer growth appears to be keeping pace. My only concern being the light guidance for Q3 and Q4, but I highly assume this is just sandbagging and actual results will be much higher. Thesis definitely still in tact in my opinion.

Kyle long MDB, ESTC