MongoDB, Inc. Q2 FY2021 Earnings Call

Good day and welcome to the MongoDB Second Quarter Fiscal 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Brian Denyeau with ICR. Please go ahead, sir.

Great. Thank you, Chuck. Good afternoon and thank you for joining us today to review MongoDB's second quarter fiscal year 2021 financial results, which we announced in our press release issued after 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 opportunity and future growth, our financial guidance, and the anticipated impact of the COVID-19 pandemic on our business and the results of operations. These statements are subject to a variety of risks and uncertainties that cause actual results to differ materially from our expectations. For a discussion of material risks and uncertainties that could affect our actual results, please refer to the risks described in our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Any forward-looking statements made on this call reflect our views only as of today and we undertake no obligation to update them. Additionally, non-GAAP financial measures will be discussed in this conference call. Please refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures to the most directly comparable GAAP financial measure. With that, I'd like to turn the call over to Dev.

Thank you, Brian, and thank you to everyone for joining us today. I will start by reviewing our second quarter results before giving you a product and go-to-market update. Looking quickly at our second quarter financial results, we generated revenue of $138.3 million, a 39% year-over-year increase, and above the high end of our guidance. We grew subscription revenue 41% year-over-year. Atlas revenue grew 66% year-over-year and now represents 44% of revenue, and we had another strong quarter of customer growth, ending the quarter with over 20,200 customers. These are strong results in any environment, but they are particularly notable during the global health and economic crisis. I'm especially proud of how our employees across all facets of the business have adapted to working in a remote environment and executed at a high level. Their passion and commitment to our customers and to the business during this difficult time have been outstanding. Over the past five years, we have conducted detailed employee engagement surveys semiannually to understand how our employees feel about the company. Tellingly, in our most recent survey conducted in this past July, the scores in employee engagement and their confidence in the company's future prospects were the highest ever recorded. Every business is quickly becoming a software business, which means the value proposition of any business is increasingly enabled, delivered, or defined by software. Consequently, a key unit of productivity of a business becomes a developer, as developers create enhanced applications that lead to competitive advantages. Since our inception 13 years ago, we have put the developer at the center of our universe, and we introduced a new class of database based on the document model or JSON. JSON is a data format that's easy for developers to read and write and machines to parse. We have always believed that JSON is the best way to work with data. As tech-savvy companies around the world adopted the document model, the industry took note. First, Microsoft, then AWS, and most recently, Oracle, tried to emulate what we have done. Oracle recently made public statements acknowledging that JSON has become the main data model for new applications and that developers love JSON because it supports dynamic schemas, consequently making it easy to make changes. I believe it's noteworthy that the industry now agrees with our fundamental premise: the document model is simply the best way to work with data. Our mission continues to make it stunningly easy for software developers to work with data, wherever it resides, to drive innovation and create value. At MongoDB.live, our user conference held in June, we made several significant product announcements that further advance our mission. With the introduction of MongoDB 4.4, we delivered a number of additional feature enhancements that push the envelope of what it means to be a modern database. With new capabilities in our query language layered on the most flexible distributed systems architecture anywhere, developers can build sophisticated transactional and analytical applications securely at scale. MongoDB Atlas Data Lake is now generally available and allows teams to query and analyze structured and unstructured data in the S3 buckets using the MongoDB query language. Atlas Data Lake also supports federated queries, which means teams can submit a single query and analyze operational data in Atlas alongside their data in S3. We announced the beta of Atlas Online Archive, which completely changes the economics of large datasets by allowing users to define rules that automatically archive data from their Atlas database to low-cost cloud object storage. Best of all, customers retain the ability to seamlessly query their archived data with no extra effort. The general availability of Atlas search allows developers to deliver rich search experiences on top of their data in the cloud without needing to deploy, learn, and manage a separate search technology. Atlas search uses the MongoDB query language and is fully managed. And finally, we unveiled MongoDB Realm, which combines the popular Realm mobile database we acquired last year and the serverless data access, data movement, and data manipulation services formerly known as MongoDB Stitch. Our core component of MongoDB Realm is Realm Sync, which is available in public beta. This edge-to-cloud data synchronization service between Realm and MongoDB Atlas on the back end solves one of the most challenging data problems for mobile developers. Our recent product announcements enable customers to use MongoDB for a broad set of use cases and represent a significant step forward in our journey to deliver the preeminent modern data platform for the developer. Our strong second quarter results reflect the fact that our go-to-market organization executed exceptionally well under challenging circumstances. It is in difficult times when world-class go-to-market organizations separate themselves from the mediocre ones, and we are proud of our team and our sophisticated approach to growing our business. Our second quarter results also demonstrate the increasing efficiency of our go-to-market efforts, as we are driving increased synergy across our four sales channels: our field sales force; the inside sales team; our self-service channel; and our partner organization. Starting with the self-serve channel, we have assembled a strong growth marketing team over the past two years, built out processes and the infrastructure to scale our self-service business, and implemented a way to rapidly experiment and launch programs to increase the size and quality of our pipeline. We are pleased by the traction we’re seeing, particularly in terms of acquiring new Atlas customers, which have achieved a third consecutive quarter of record growth. As our sophistication in managing the self-serve business grows, we are finding ways to accelerate the growth of the overall Atlas business. We accomplish this by identifying self-serve customers based on product usage signals that benefit from direct engagement with our sales organization. With more attention, service, and support, we see a significant acceleration in customer spend. As we have become better at identifying self-service customers with high-growth prospects, it has given our sales teams a more efficient way to prospect our self-service customer base. The end result is a self-serve channel that generates significant value on multiple levels, as an important revenue generator in its own right and as a source of excellent leads for our inside and field sales teams. Turning to our inside and field sales teams, we have gained conviction over the past year that new Atlas customers, irrespective of their size, grow rapidly when given proper resources and support at the outset. This is true for customers who transition from self-service, as well as those launching new applications on Atlas or migrating their self-managed instances of the community server onto our platform. As a result, we have adjusted our approach to increase the velocity of acquiring new customers. This year, prior to the outbreak of COVID-19, we changed the incentives of our sales team to focus more on landing new customers onto our platform and less on the initial size of the commitment. Moreover, we are using our professional services organization strategically to set customers up for success early, giving them more confidence in using MongoDB. The result is a third consecutive quarter of record customer growth, with notable strength in our inside sales channel. Lastly, the partner organization is sourcing or influencing a growing percentage of our business, especially with cloud providers. We have seen strong momentum in deal activity with all three major cloud providers, and each is providing more marketing dollars, adding incentives for their salespeople to work closely with MongoDB, and dedicating more headcount to support and grow the partnership. Given the fundamental advantages of the document model and the breadth of our product offering, customers recognize that MongoDB is the clear choice for their digital transformation plans. The combination of our leading modern data platform and our sophisticated go-to-market efforts allows us to deliver consistently strong performance. Now I'd like to spend a few minutes reviewing some of the customer wins and interesting use cases from the second quarter. One of the world's largest telecommunications providers is currently developing a next-generation location service that can pinpoint mobile locations with centimeter-level accuracy. Their need for a flexible data model with rich indexing and translytical capabilities and a data platform that can scale quickly led them to choose Atlas this quarter. Adair Group, the world's third-largest holding company in consumer goods for do-it-yourself decoration, with an international network of 14 brands across 13 countries, moved to Atlas in order to standardize app development among the developers and accelerate time to market as e-commerce demands grew during COVID-19. Agero, a leader in the digitalization of driver system services, serving more than two-thirds of insurance companies in the U.S., chose MongoDB to help power its next generation of software-enabled driver safety services and technology. MongoDB Atlas has allowed them to move from one monolithic application to microservices, providing a better digital experience for the 115 million drivers they protect each year. Highspot, the sales enablement platform that makes every conversation count, helps customers worldwide empower their remote sales efforts, which is now more crucial than ever because of COVID-19. They recently standardized on MongoDB Atlas to drive strategic growth and improve customer satisfaction. Symphony, the cloud messaging and collaboration platform for the financial services industry, chose MongoDB Atlas to support the evolution of their architecture and faster efficiencies. Atlas will allow them to adhere to crucial security policies and provide the best and most reliable experience to customers at scale. Lastly, one of the world's largest cloud providers has built a security solution on MongoDB that provides rich visibility, control over data traffic, and sophisticated analytics to identify and combat cyber threats across their cloud services. This cloud provider increased its commitment to MongoDB, making us the primary technology for handling immense workloads in a highly flexible yet secure environment. In summary, we are very pleased with our performance in Q2. While the macroeconomic environment remains challenging, we are executing well and remain focused on the enormous opportunity that lies ahead. We continue to invest to capture this opportunity, particularly by recruiting world-class talent to help us maximize our potential. To that end, in the past weeks, we welcomed several important additions to our senior management team. Mark Porter joined us as our Chief Technology Officer in July. Most recently, he was CTO of Core Technologies and Transport at Grab and is a 30-year veteran of the database industry. He is an early member of the Oracle Database Kernel Group and later was a General Manager of the AWS RDS business. Mark originally joined MongoDB as a Board member earlier this year, but he got excited about the opportunity in front of MongoDB and wanted to be directly involved. Very few people understand relational database technology and its limitations better than Mark. So we're excited that he voted with his seat and joined the world's most popular modern database company in a senior leadership role. In early August, we welcomed Harsha Jalihal as our new Chief People Officer. Harsha is a seasoned HR executive who has been at the forefront of scaling large tech companies as well as managing complex enterprises. Most recently, Harsha was the Vice President of HR at Unilever and was responsible for delivering end-to-end HR strategy and operations for the U.S. business. Prior to that, she was an HR executive at Cognizant during its hyper-growth phase. Finally, in mid-August, Rishi Dave joined us as Chief Marketing Officer. Rishi is a veteran technology and marketing executive with more than two decades of experience, most recently at Vonage, where he was the company's Chief Marketing Officer. Prior to that, Rishi was CMO at Dun & Bradstreet, a cloud data and analytics provider, and earlier had a senior leadership role driving Dell's digital marketing strategy. Harsha, Mark, and Rishi joined a talented and dedicated senior management team that is performing at a high level, as our Q2 results clearly demonstrate. We are excited for what we can all accomplish together as we continue disrupting one of the largest markets in software. With that, I'll turn it over now to Michael.

Thanks, Dev. As mentioned, we delivered another strong performance in the second quarter, both financially and operationally. I'll begin with a detailed review of our second-quarter results and then finish with our outlook for the third quarter and full fiscal year 2021. First, I'll start with our second-quarter results. Total revenue in the quarter was $138.3 million, up 39% year-over-year. Subscription revenue was $132.5 million, up 41% year-over-year; and professional services revenue was $5.8 million, up 11% year-over-year. To put our performance in the quarter into perspective, we thought it would be helpful to provide an update on how COVID-19 has impacted the growth of our business. First, let's talk about new business. The negative impact of COVID-19 on new business in Q2 was less than we had expected. As Dev explained, our various go-to-market teams executed well in the first fully remote quarter since the pandemic started. Second, in Q1, we noted a slowdown in the growth in spending from our existing Atlas customers, particularly in the self-serve channel. In mid Q2, as economies around the world began the gradual process of reopening, we saw improvement in the rate of growth of our existing Atlas customers. While the trend remains below historic levels, the improvement we experienced in Q2 increases our confidence that the slower than historic growth is simply a macro phenomenon. Overall, Atlas's strong performance continued to be the biggest contributor to our growth. Atlas grew over 66% in the quarter and now represents 44% of total revenue compared to 37% in the second quarter of fiscal 2020 and 42% last quarter. During the second quarter, we grew our customer base by over 1,800 customers sequentially, bringing our total customer count to over 20,200, which is up from over 15,000 in the year-ago period. Of our total customer count, over 2,500 are direct sales customers, which compares to over 1,850 in the year-ago period. The growth in our total customer count is being driven in large part by Atlas, which had over 18,800 customers at the end of the quarter compared to over 13,200 in the year-ago period. It's important to keep in mind that the growth in our Atlas customer count reflects new customers to MongoDB in addition to existing EA customers adding incremental Atlas workloads. We had another quarter with our net ARR expansion rate above 120%, despite the impact of the macroeconomic environment. We ended the quarter with 118 customers at at least $100,000 in ARR and annualized MRR, which is up from 62 in the year-ago period. Moving down the P&L, I'll be discussing our results on a non-GAAP basis unless otherwise noted. Gross profit in the second quarter was $99.7 million, representing a gross margin of 72% compared to 73% last quarter and 72% in the year-ago period. Overall, we are pleased with our gross margin performance, which reflects greater efficiency and scale in our Atlas business. However, we continue to expect that we'll see some modest reduction in overall company gross margin as Atlas continues to account for a bigger portion of our revenue. Our operating loss was $10.2 million or a negative 7% operating margin for the second quarter compared to a negative 15% margin in the year-ago period. Our outperformance versus our operating loss guidance was in part driven by revenue outperformance, but also by the timing of certain expenses that we now expect to incur in the second half of the year. Net loss in the second quarter was $12.7 million or $0.22 per share based on 58.4 million weighted average shares outstanding. This compares to a loss of $0.26 per share on 55.6 million shares outstanding in the year-ago period. Turning to the balance sheet and cash flow, we ended the quarter with $975.4 million in cash, cash equivalents, short-term investments, and restricted cash. Operating cash flow in the second quarter was negative $10 million. After taking into consideration approximately $5 million in capital expenditures and principal repayments of finance lease liabilities, free cash flow was negative $15 million in the quarter. This compares to negative free cash flow of $13.8 million in the second quarter of fiscal 2020. I'd like to turn now to our outlook for the third quarter and full fiscal year 2021. For the third quarter, we expect revenue to be in the range of $137 million to $139 million. We expect non-GAAP loss from operations to be $27 million to $25 million, and non-GAAP net loss per share to be in the range of $0.48 to $0.45 based on 59.1 million weighted average shares outstanding. For the full fiscal year 2021, we are increasing our revenue guidance to $549 million to $554 million. We are improving our profitability expectations and now expect non-GAAP loss from operations to be $71 million to $66 million and non-GAAP net loss per share to be in the range of $1.29 to $1.21 based on 58.7 million weighted average shares outstanding. Let me provide some incremental color on how we're seeing the ongoing COVID-19 pandemic impacting our outlook for the rest of the year. As we did in our Q4 and Q1 calls, let me start off by updating you on our underlying view on the business environment that's driving our guidance. In March, we expected COVID-19 to have a material impact only in the first half of the year. By June, we understood the impact would extend into the second half of fiscal 2021. At this point, we believe that the pandemic's impact will extend at least through the end of this fiscal year. Starting with new business, our strong Q2 results notwithstanding, we do expect to see an impact on new business in the second half of the year. While customer engagement continues to be high, we expect macro uncertainty to be a factor. Furthermore, our forecast assumes we continue experiencing slower than historic growth from our existing Atlas customers, consistent with our results in Q2. Finally, as you will recall, our fourth quarter last year was a particularly strong quarter for our Enterprise Advanced product. Enterprise Advanced has an immediate impact on revenue due to the fact that under ASC 606, we recognize the term license component upfront. That dynamic makes Q4, in particular, a tough comparison for us. To summarize, MongoDB delivered excellent second quarter results. We're executing well on our product and go-to-market strategies, which is generating strong growth at scale. We believe our clear leadership as the modern data platform of choice will enable us to continue delivering strong growth going forward. With that, we'd like to open it up to questions. Operator?

Thank you. We will now begin the question-and-answer session. And our first question will come from Keith Weiss with Morgan Stanley. Please go ahead.

Excellent. Thank you, guys for taking the question, and congratulations on a very impressive quarter. Very impressive in terms of the momentum that you guys are keeping up on both sort of the top line in terms of the nice growth that you saw there, as well as operationally in terms of those hires that you guys are able to get. One of the numbers in particular that I wanted to ask you about that really popped out for me was the number of new customer additions that we saw in the quarter. It looks like over 1,800 new customers. And that's frankly, the biggest number that I have on my spreadsheet here, of you guys ever historically adding in what is admittedly a very difficult IT spending environment. So Dev, for you, is there any change in kind of like go-to-market or sort of a better motion like you're talking about in self-service? What's driving that strength and sort of that upward momentum that we're seeing in those new customer adds?

Yes. Thanks, Keith. We're obviously very pleased with the customer additions for the quarter. I would tell you that we made some changes to sales incentives at the beginning of the year prior to the outbreak of COVID-19, where we made a conscious decision to accelerate the acquisition of new customers this year. And we saw how customers grew really quickly once they got into our platform, particularly on Atlas. Because of this, we decided to focus more on acquiring new customers, and they naturally will grow more. Previously, we incentivized our salespeople to get upfront commitments, and many customers were not completely sure about the platform's capabilities or how quickly their workloads would grow. This created a bit of friction in the sales process. By removing that objection, we have unleashed the productivity of our salespeople, cutting down the cycle time of some deals, allowing them to get on the platform more quickly and increasing the number of new customers we add.

Got it. That makes a ton of sense. And then, Mike, a question for you, related to the guidance. The implied Q4 guide, if we subtract out Q3, indicates a pretty sharp slowdown in overall revenue growth. I just want to clarify, it sounds like a lot of that is tied to a tough comp from strong EA a year-ago period. Is there also an aspect of mix shift in terms of the expectation that there's going to be a focus more on subscription and new business coming through Atlas versus EA that’s impacting the year-on-year growth dynamic for total revenues as we get into Q4?

Yes. So thanks for the question, Keith. Overall, I think we have a very healthy outlook despite a challenging macroeconomic backdrop. But as we've indicated, we expect to see some impact on new business in the macroeconomic environment. We're also expecting to continue to see Atlas consumption expansion at lower levels than we've had historically, consistent with Q2. There is also the tough comparison. Last year in Q4, we had a particularly strong quarter for our Enterprise Advanced product. One large multiyear customer from last Q4 represented about $3.5 million of revenue just from that one customer. So not only do you lose that in the denominator, but you will also not see it in this year's numerator. Overall, we like the dialogues we're seeing, and the relevance of our product remains strong, but there is macroeconomic uncertainty in the back half of the year.

Got it. Thank you very much, guys.

Thanks, Keith.

Our next question will come from Brent Bracelin with Piper Sandler. Please go ahead.

Thank you. One for Dev and a follow-up for Michael. Dev, I wanted to drill down on the record number of new customers as well. While I appreciate the self-service investments and focus over the last year, that seems to be having an impact. It sounds like there are incentives with the sales force that resonate and lower some adoption barriers as well. But is there also an industry shift? Is the product resonating in this current environment, post-COVID, in ways you didn't necessarily expect? Or would you say most of the performance this quarter was largely due to internal execution?

Well, thanks for the question, Brent. I would say it's a bit of both. Customers are gravitating towards a modern technology stack that allows them to be nimble, move quickly, and innovate faster. MongoDB plays to that strength. They want to focus on work that adds value to the business while outsourcing all the undifferentiated work, and managing a database doesn't provide a competitive advantage. Additionally, our platform offers customers a lot of choices with offerings to run their workloads across three different providers, which gives them confidence in using Atlas. We've also put a lot of focus on our go-to-market efforts, so you're seeing strong execution across our four channels, in addition to slight modifications in our incentives to make it easier for customers to engage with us.

Certainly, some is working there and working well in the current environment. I guess, Michael, for you, as a follow-up, you discussed the COVID impact in the second half and gave a bit more color on the tough comp on EA. But as you think about the pipeline, would you say the new business pipeline looking out in the second half is slightly depressed? Or are you assuming just a lower close rate in the second half because of all the uncertainty?

Yes, sure. No, totally understand. We feel very good about the engagement we're seeing with customers. But I think in light of the macroeconomic environment, it makes sense to factor that in. We have one quarter under our belt fully remote, and I think we feel really good about how the team has done. But the situation with COVID-19 and the overall coordinated global slowdowns is unprecedented. I'm incredibly proud of how people have adapted. But this isn't a playbook where you set it and forget it; there's a lot operationally to focus on. So, we are proud of what the team has done, and how we've managed, but when you look out at the second half of the year, it's hard not to assume that the macro won't have an impact.

Very clear. Thank you.

The next question will come from Raimo Lenschow with Barclays. Please go ahead.

Hey, congrats from me as well. Two quick questions; one for the CEO. If you look at larger customers, there's usually an application that sits there and the Mongo database powers it. What are you seeing in terms of people's interest? There's a lot of talk about digital transformation, but with COVID, some industries obviously are not doing so well. What do you see in terms of that interest in engaging with you? I would assume that's a multi-quarter story that should be starting to unfold. But I'm wondering if you see some of that already. And then I had a follow-up for Michael.

Yes. There is no question that COVID-19 has forced every customer, no matter how traditional or deeply rooted in legacy technology, to become digital by default. Whether you're a traditional retailer needing to quickly build out your e-commerce channel, or in another industry, you need to find a way to engage with your customers in a digital format. This plays to our strength: customers can innovate and build quickly on MongoDB, and they can scale it better than on legacy platforms. Atlas becomes appealing because we handle all the database management and underlying infrastructure. Plus, we provide choice across different cloud providers, based on what the customer needs or existing relationships, which gives them confidence in adopting Atlas. What COVID-19 has done is accelerate long-term trends. We’ve always been bullish about the future, and COVID is just speeding things up.

Okay, perfect. That makes total sense. And then one for Mike. Mike, I hear you on the Q4 situation. But if I look at your Q3 guidance, it also looks for kind of flat quarter-on-quarter, which is something we haven't seen. Is there anything in Q3 on the comps, etc., or EA that you wanted to point out?

No. I think in Q3, the key thing is we have a very healthy outlook and strong customer engagement, but just a lot of macro uncertainty that we've factored into the forecast, which has been consistent with our approach each quarter to align with the current state of the macroeconomic landscape. But from an overall engagement perspective, the outlook is quite strong. However, we expect to impact new business, particularly with the Enterprise Advanced product, and this has revenue implications due to term license revenue recognition.

Okay, perfect. Thank you.

Our next question will come from Heather Bellini with Goldman Sachs. Please go ahead.

Thanks, guys for taking the question. Just had a couple of quick ones. Regarding your comments about Atlas and consumption, you're starting to see existing customer consumption coming back. Do you have a sense of how far off this is from pre-COVID levels, and how long you think it might take to rebound? I know that's a tough question given the macro environment, but I'll start with that one.

Sure. I would go back to our commentary on the Q1 call where we talked it being modest but broad-based and tracking the macro economy overall. In Q2, mid-Q2, we saw a rebound or an improvement in those lower levels, which clearly indicates—based on our analysis—that it's tied to overall economic conditions. It’s not quite back to historic levels, and it would be very hard to predict when or how that will happen. But the correlations we've observed point to macroeconomic behavior.

Okay. And then the follow-up question would be regarding requests for payment extensions from customers. Are you seeing any such requests, or are you doing anything creative on top-of-funnel builds that might be helping down the line?

We saw a very limited and isolated instance of that in Q1, but it has effectively worked itself out. Those issues have cleared, and the frequency of such requests has dried up. We saw a few at the onset of the crisis, but it's not been a recurring consideration.

Okay, great. Thank you so much.

The next question will come from Brad Reback with Stifel. Please go ahead.

Great. Thanks very much. Dev, as you think about the evolution of the go-to-market and the acceleration in smaller Atlas customers upfront, coupled with a much broader product portfolio, is there any reason to think that your net dollar expansion rate shouldn't accelerate in the coming years?

Yes. To clarify why we're doing this: We have seen Atlas customers grow quickly, and we want them to get on the platform so that they view Atlas as the standard way of building and deploying applications. This has long-term implications. The net expansion rate has been strong, and we don't anticipate any changes to that.

Great. Thanks very much.

Thank you.

The next question will come from Jason Ader with William Blair. Please go ahead.

Yes. Thank you. Dev, when you look at the database market, we're still seeing good traction for relational products. I'm thinking, in particular, of MongoDB. Where do you think that traction is coming from, especially as the document model seems to be gaining significant share?

Yes, so there are two phenomena. One is what I call ‘lift and shift,’ where customers want to get off a legacy vendor— often Oracle—to an open-source relational database. Many customers mistakenly believe that this allows them to run their business. However, they miss the opportunity to refactor their applications and modernize to fully leverage the benefits of distributed platforms and microservices. Some customers have decided not just to lift and shift but to replatform and choose MongoDB. It really depends on the customer's urgency and understanding of the challenges in moving off a relational database. This is why we're expanding our reach, collaborating with systems integrators and partners, and working with our salesforce to showcase the benefits of MongoDB, which makes shifting easier.

Do you think the current environment will alter those dynamics at all? In other words, perhaps move people more quickly to modernization or replatforming?

I think initially, many people viewed us as a niche solution, but we've demonstrated that MongoDB can serve demanding customers globally across use cases, and that's only increasing. As the major players have recognized that JSON is gaining traction, the document model is indeed the best way to work with data. The advantages of our distributed capabilities simplify scaling compared to relational platforms that require additional complexities. It takes time, but we've seen customers realize this for sophisticated applications.

Hey, thanks. Good evening, Mike and Dev. Michael, I wanted to start with you in trying to understand the accelerating customer adds here. Are you landing new customers at a lower ASP and then hoping those expand higher down the road? Could you help elucidate the financial impacts here??

Sure. There are different factors and flavors. You can slice it by channel or product. If you look at it on a channel basis, it’s really improvements from investments in the self-serve model. Self-serve customers come on at around $5,000 or $6,000 in annualized spend, and the unit economics are very attractive given cohort behavior. We continue improving our approach, and we've been pleased with results there. On the direct sales side, we’ve refined our approach to make it easier for customers to use the platform. Rather than focusing on maximizing initial commitment, we focus on getting users on the platform, which leads to expanding their usage over time. Our customers will often start consuming less initially, but from a consumption revenue perspective, it doesn’t matter much whether they make a big commitment upfront since initial consumption is typically small.

Furthermore, during difficult times, many companies default to sell to the existing install base. However, we felt that would be a mistake; we see a huge market opportunity. Engaging with them earlier builds lasting relationships and conditions them to utilize Atlas as the primary platform for application development.

Thank you. Just a follow-up for you, Dev. I'd love your view on Oracle's autonomous JSON service. I know you touched briefly on it earlier. Do you think Oracle introduced this service in response to competitive pressure from you? And what’s your take on their pricing claims of being 30% cheaper?

Certainly. Oracle initially provided support for JSON back in 2014, but they recently announced support for JSON in their autonomous database in the cloud. It only runs on their cloud and operates on top of a relational database. Essentially, it's a shim that makes it easier for developers to use JSON while leveraging the old engine. There are significant feature limitations, such as not being able to effectively parse numeric data, as everything is treated as text. They acknowledge that JSON is the format developers prefer, and we believe that as the world shifts towards document-based architectures, we are well-positioned. We've competed with clones for a while, and we continue to perform well.

The next question will come from Jack Andrews with Needham & Company. Please go ahead.

Hi. Good afternoon. I want to ask a couple of product questions. First, can you talk about the uptake of Search within your customer base? Any context around changes in consumption patterns?

We made these products generally available in June this past year, so it’s early days. We're quite excited about the uptake so far. Customers have communicated a preference to stay on one platform instead of managing a separate one, and our Atlas Search product is fully managed, allowing users to leverage all the features they had previously. It is still early, but we are pleased with results to date, and as sales focus grows on this, we feel optimistic about the trends.

That's great. As a follow-up, how should we think about the monetization opportunity around Realm? What proportion of your customers need these full capabilities between Realm and the cross-sell with Atlas?

We acquired Realm to enable developers to utilize a powerful format more easily. The Realm mobile database architecture closely resembles our MongoDB architecture. Realm itself won’t be monetized, but we want mobile developers to adopt Realm and Atlas as a standard for application building since this will accelerate their development cycles. What you'll see in revenue impact will be more on the Atlas consumption rather than monetizing the front end. Generally, we provide the mobile database for free to make it easier for developers, and we want to simplify the complexity of data synchronization between the client and server to enrich our customers' experience.

This concludes our question-and-answer session. I would like to turn the conference back over to Dev Ittycheria for any closing remarks. Please go ahead.

Thank you for joining us today. I'm proud of the strong execution this quarter in a difficult macro environment. We’ve expanded our product portfolio to solidify our lead as the premier data platform for developers. Our record direct and self-serve customer additions demonstrate that our strategy of adding new customers is effective. Lastly, we are pursuing a large market opportunity, and COVID is only accelerating long-term trends. Thank you for your time, and we’ll talk soon. Take care. Bye-bye.

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