MongoDB, Inc. Q3 FY2022 Earnings Call

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

Thank you, and good afternoon and thank you for joining us today to review MongoDB’s third quarter fiscal twenty twenty two financial results, which we announced in our press release issued after the close of the market today. During 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 the ongoing COVID-19 pandemic and its impact on our business, results of operations, clients and the macroeconomic environment, could cause actual results to differ materially from our expectations. For 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.

Thank you, Brian, and thank you to everyone for joining us today. I will start by reviewing our third quarter results before giving you a company update. Looking quickly at our third quarter financial results, we generated revenue of $227 million, a fifty percent year-over-year increase and above the high end of our guidance. Atlas revenue grew eighty-four percent year-over-year, representing fifty-eight percent of revenue and is now over $0.5 billion revenue run rate. We had another strong quarter of customer growth ending the quarter with over thirty-one thousand customers. Our third quarter results demonstrate that customers are increasingly choosing MongoDB to build modern apps that run their businesses. We had another strong quarter of customer additions led by a self-service channel. Both our field sales and inside sales teams again performed well. A key driver of results is the healthy expansion of our customers as many of them are meaningfully increasing their adoption of MongoDB. As you'll hear from Michael, some of our largest customers made increased multiyear commitments to MongoDB in Q3. Our performance is clear evidence that MongoDB is emerging as an enterprise standard in a growing number of accounts. Our excellent Q3 performance is the result of continuously strong go-to-market execution as well as a confidence in two factors, secular trends that reinforce our technical advantages and our growing credibility and influence with customers. Let me start with the secular trends that play to our strengths. First, the ability to move fast and innovate quickly, whether it's pivoting to a digital-first strategy, quickly seizing new market opportunities or responding to new threats has never been more important. MongoDB’s document model maps data to the way developers think in code, removing friction from the development process to enable developers to move incredibly fast. Second, while there has been a proliferation of single-purpose databases that address specific needs, most customers find the challenges of learning, managing, and supporting myriad technologies and resulting data silos to be overwhelming. Consequently, there's a growing demand for a modern general-purpose database platform that supports a broad range of workloads to dramatically reduce the cost and complexity of a company's data infrastructure. MongoDB’s application data platform is designed to address these specific needs. Third, the performance and scale expectations of modern applications continue to grow. MongoDB's distributed architecture supports unlimited horizontal scaling, allowing organizations to linearly scale costs as the applications grow and to easily address data sovereignty regulations or to ensure responsive and predictable performance where the users are local or across the world. Today, we have customers with workloads handling over one million transactions per second, with data sizes of hundreds of terabytes. Legacy platforms struggle to address these demanding performance and scale requirements. Fourth, the accuracy, availability, and security of data are of paramount importance. MongoDB allows developers to easily build resilient mission-critical applications with native replication, fast and automatic failover and retriable operations. MongoDB also offers sophisticated security controls for access, auditing and end-to-end encryption whether data is in use or at rest. And fifth, customers want choice on where and how they deploy their applications. The offers can build and run MongoDB applications in a data center, in any cloud, and at the edge. However, technical advantages are not enough unless there are customer proof points to validate these technical claims. As a disruptive force in a massive market with longstanding entrenched technology, we had to build our credibility one workload at a time. We usually land in an account by identifying a pain point that simply cannot be addressed by legacy technology. We then leverage the success of the first workload to expand across divisional and geographic boundaries. Eventually, we up-level the conversation to the C-suite and become a standard for future app development. While it's still early days, we believe the key driver of our success this year has been the growing trend of customers choosing MongoDB as an enterprise standard, which is having a positive impact on our ability to increase our penetration of these accounts over time. With more than thirty-one thousand customers, which is up ten times since our IPO four years ago, we have all types of customers using MongoDB to do a wide variety of amazing things to run and transform their businesses. We have had tremendous success in acquiring customers from large global two thousand organizations to cutting-edge startups across all major industries in most geographies. This creates a compelling social proof effect. When we are able to reference customers in particular industries or geographies who are aggressively adopting MongoDB, other customers in those same industries or geographies become more interested in engaging with us. While we feel confident about our position in the marketplace, we are not standing still. We recently moved to a quarterly product release schedule starting with MongoDB 5.1 to bring new features to market more quickly. MongoDB 5.1 includes time series enhancements, such as support for shorting, improved capabilities for joins and draft for more sophisticated real-time analytics and enhancements to our client-side field-level encryption security feature to work with any KMIP-compliant key management system. In addition, we announced a preview ability to provide one hundred times faster facets and counts in the search. Faster search allows users to filter and quickly navigate search results by categories. Fast facets and counts are essential in search-first applications such as product catalogs and content search. MongoDB combines the core database and search database into one unified developer and operational experience, differentiating itself from all other standalone application search offerings in the market. Last but not least, we also announced the Atlas data API which allows developers to easily access MongoDB data via a standard REST-like interface. It exposes MongoDB’s rich query and migration capabilities and is a fully managed scalable API that allows customers to quickly build microservices on Atlas and easily integrate with a wide array of tech stacks. We made these product announcements at our Local Developer Conference in London, which is our first in-person event since the start of COVID-19. We also just returned from AWS re:Invent, where we announced the expanded relationship with AWS including the launch of a pay-as-you-go MongoDB Atlas on the AWS marketplace. Customers used to buying services from the AWS marketplace can find a simple and integrated way to subscribe to MongoDB Atlas, even starting with the free trial and using Atlas without the need for any upfront commitment. This makes it even easier to start using Atlas. Now, I’d like to spend a few minutes reviewing some customer wins and interesting use cases from the quarter. Coinbase, which is dedicated to increasing economic freedom in the world by building a more accessible, transparent, and equitable financial system is the trusted choice of more than seventy-three million individuals, businesses, and institutions to interact with the crypto economy. The company is moving more work close to MongoDB Atlas so it can build new products and services quickly and meet the scale and availability requirements of the unprecedented growth in the cryptocurrency markets. The adoption of Atlas Data Lake gives their engineers a simple and powerful way to create resilient data pipelines that enable downstream analytics on the large volumes of data generated by the platform. Global technology and communications leader Verizon is working with MongoDB to bring data closer to the edges as part of its multi-access edge computing and 5G data architecture. This can enable the next generation of low-latency applications such as machine learning, intelligent edge, robotics, AR/VR, autonomous vehicles, telemedicine, and more. QHealth is a healthcare technology company that makes it easy for individuals to access health information and places diagnostic information at the center of care. Their revolutionary new device, the QHealth monitoring system paired with COVID-19 test, is the first at-home molecular COVID-19 test available over the counter without a prescription, and it is used by the NBA, Johnson & Johnson, and Mayo Clinic. The company chose MongoDB Atlas, search, and Realm Sync to power their mobile application, mobile database, and synchronization enabling consumers to receive data from the QHealth devices on their smartphones and securely store it in the cloud. Telecom Italia Mobile or TIM, the communications industry leader in Italy and Brazil, utilizes fixed mobile and cloud infrastructure, data centers service offerings, and products for communications and entertainment. The company is at the forefront of digital technologies, TIM selected MongoDB Atlas for Fly Together, its core digital service delivery platform to accelerate the transition to Google Cloud and enable flexible delivery of digital services through a microservices architecture. MongoDB has been a partner and maximized the customer experience across all of its digital channels. In summary, we had another excellent quarter. Our strong performance is a result of the seeds we planted years ago, such as launching Atlas, releasing multi-document asset transactions, and expanding our go-to-market channels to complement our enterprise sales organization. Our continued success fuels our aspirations. We not only expect to benefit from the seeds already planted, but we will continue to plant new seeds to drive long-term growth. Customers are embracing the vision of our application data platform that simplifies their data architecture while accelerating the pace of innovation. We believe the seeds we are planting today will yield strong results in the years to come. Before I turn it over to Michael, I would officially like to welcome our new CMO, Peter Ulander, to MongoDB. Peter joined us from AWS, where he led developer enterprise marketing. He brings deep experience in the cloud, open source, engaging with developers, and has a track record of helping brands from startups to tech leaders take advantage of major market transitions. With that, here's Michael.

Thanks, Dev. As mentioned, we delivered another strong performance in the third quarter, both financially and operationally. I'll begin with a detailed review of our third quarter results and then finish with our outlook for the fourth quarter and full fiscal year twenty twenty two. First, I'll start with the third quarter results. Total revenue in the quarter was $226.9 million, up fifty percent year-over-year. Subscription revenue was $217.9 million, up fifty-one percent year-over-year and professional services revenue was $9 million, up thirty-five percent 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 eighty-four percent in the quarter compared to the previous year and now represents fifty-eight percent of total revenue compared to forty-seven percent in the third quarter of fiscal twenty twenty one and fifty-six percent last quarter. In any given quarter, the sequential growth of Atlas has been primarily driven by the expansion of the existing applications on our platform. As you can see in our strong Q3 results, that expansion was towards the higher end of the historical range this quarter. Enterprise Advanced also exceeded our expectations this quarter driven by stronger than anticipated new business demand. During the third quarter, we again grew our customer base by over two thousand customers sequentially bringing our total customer count to over thirty-one thousand, which is up from over twenty-two thousand six hundred in the year-ago period. Of our total customer count, over three thousand nine hundred are direct sales customers, which compares to over two thousand eight hundred 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-service customers with whom we have now established a direct sales relationship. The growth in our total customer count is being driven in large part by Atlas, which had over twenty-nine thousand five hundred customers at the end of the quarter compared to over twenty-one thousand one hundred customers in the year-ago period. It is important to keep in mind that the growth in our Atlas customer count reflects new customers to MongoDB in addition to existing Enterprise Advanced customers adding incremental Atlas workloads. We had another quarter with our net expansion rate above one hundred and twenty percent. We ended the quarter with one thousand two hundred and one customers with at least one hundred thousand dollars in annual recurring revenue, which is up from eight hundred ninety-eight in the year-ago period. The continued strong growth in customers with one hundred thousand dollars or more in ARR is an indication of the success of our land-and-expand go-to-market strategy and the fact that we are increasingly becoming a strategic partner for our customers. Moving down the income statement, I'll be discussing our results on a non-GAAP basis unless otherwise noted. Gross profit the third quarter was one hundred and sixty-three point nine million dollars, representing a gross margin of seventy-two percent, which is consistent with last quarter and seventy-two percent in the year-ago period. In the near term, we continue to expect some modest reduction in the overall company gross margin as Atlas continues to grow as a percentage of our revenues. Our operating loss was three point five million dollars or a negative two percent operating margin for the third quarter compared to a negative eleven percent margin in the year-ago period. Our outperformance versus our operating loss guidance was clearly driven by our revenue outperformance but also by the timing of certain expenses. Due to the ongoing COVID-19 pandemic, we are experiencing less of a rebound in travel events and workplace expenses than we had previously assumed. At the beginning of fiscal twenty-two, we had shared our expectation that these categories would contribute an incremental twenty million dollars to twenty-five million dollars in expenses for the year compared to fiscal twenty twenty one, with most occurring in the second half. Given the sustained impact from the pandemic, our revised expectation is that these incremental expenses will only amount to nine million dollars to twelve million dollars for the current year. We see this as a one-time benefit as we do expect our activities to return much more closely to pre-COVID levels in fiscal year twenty-three. In addition, our marketing spend was lower than expected in Q3 as our new CMO, Peter Ulander, put certain programs on hold while we evaluated their effectiveness. This process is now complete, and we expect our marketing spend to revert to normal levels in Q4. Net loss in the third quarter was seven point two million dollars or zero point one one dollars per share based on sixty-six point four million weighted average shares outstanding. This compares to a loss of eighteen point two million dollars or zero point three one dollars per share on fifty-nine point four million weighted average shares outstanding in the year-ago period. Turning to the balance sheet and cash flow, we ended the quarter with one point eight billion dollars in cash, cash equivalents, short-term investments, and restricted cash. I would also like to point your attention to a meaningful sequential increase in our deferred revenue. As Dev mentioned in his remarks, we are increasingly becoming an enterprise standard and strategic partner to our largest customers. Correspondingly, these customers have high confidence in the continued growth of MongoDB. In order to optimize the best commercial terms, these customers typically make multiyear commitments to MongoDB. In Q3 we had a number of our largest Atlas customers renew their Q4 and Q1 contracts early. Because these are Atlas customers and Atlas revenues are recognized upon consumption, the multiyear nature of these Atlas commitments did not affect revenue in the period. However, there was an impact on deferred revenue, given these contracts were billed annually in advance. While early renewals occur regularly in our business, the dollar magnitude in Q3 was significantly above what we had experienced in the past. Operating cash flow in the third quarter was negative five point eight million dollars after taking into consideration approximately three point four million dollars in capital expenditures and principal repayments of finance lease liabilities. Free cash flow was negative nine point two million dollars in the quarter. This compares to negative free cash flow of fourteen point nine million dollars in the third quarter of fiscal twenty twenty one. I would now like to turn to our outlook for the fourth quarter and full year fiscal twenty twenty-two. For the fourth quarter, we expect revenue to be in the range of two hundred thirty-nine million dollars to two hundred forty-two million dollars. We expect a non-GAAP loss from operations to be thirteen million dollars to eleven million dollars and non-GAAP net loss per share to be in the range of zero point two four dollars to zero point two one based on sixty-seven million weighted average shares outstanding. For the full year of fiscal twenty twenty-two, we now expect revenue in the range of eight hundred forty-six point three million dollars to eight hundred forty-nine point three million dollars. For the full fiscal year twenty twenty-two, we expect a non-GAAP loss from operations to be thirty-six point four million dollars to thirty-four point four million dollars and non-GAAP net loss per share to be in the range of zero point seven four dollars to zero point seven one dollars based on sixty-four point six million weighted average shares outstanding. To summarize, MongoDB delivered excellent third quarter results. We're seeing strong customer additions as well as excellent expansion within our existing customers. Customers have increased confidence in our application data platform and are increasing their commitments to MongoDB. Our performance gives us increased confidence to continue investing to capture the large market opportunity ahead of us and we're seeing attractive returns on those investments.

We will now begin the question-and-answer session. Our first question today comes from Sanjit Singh with Morgan Stanley.

Thank you for taking the questions and congrats on a very strong quarter. Great results across the board, including Atlas. If I take a step back, Dev, and I look at where we are with Atlas in terms of the mix, sort of fifty-eight percent of revenue; it’s almost two-thirds of your subscription revenue. When we look at the motion around migration, so, enterprise customers have been expanding for Atlas for quite some time. Now are you starting to see more of the outright migrations from Enterprise Advanced to Atlas, or is that still on the horizon? And when customers do that, is there a revenue uplift associated with customers who migrate from Enterprise Advanced to Atlas?

Thanks, Sanjit. Yes, to your question on migrations, still, it's a very small set of customers who have actually migrated from Enterprise Advanced to Atlas. The bulk of our growth of Atlas is net new workloads. In terms of a price increase, generally, it tends to be flattish, maybe there’s a slight price premium, but there's not some significant price delta. Again, I would say the growth of Atlas is really driven by a massive cloud transformation happening in the enterprise, and the best-of-breed vendors are winning, and clearly customers are very comfortable moving mission-critical workflows, not only to the cloud but also to MongoDB, and that's what I think you've seen here.

Makes total sense. And in your script, I thought to call out Coinbase being a customer was pretty interesting. That obviously ties into the sort of new financial revolution that's going on and we think of massive scale, but also financial transactional integrity. I was wondering what the specifics of the use cases Atlas was playing with from that customer. Is that more around customer interactivity or is that more on kind of the transactional level?

Yes. I think there are limits to what I can say, but it's definitely on the transactional level along with some adjacent applications. They have some pretty unique requirements when it comes to performance and scale. You can imagine they have a lot of periods with intense trading days, and they need to quickly scale up capacity to deal with those surges in trading volume. So they realized the only platform that could really address their needs was MongoDB.

Well, great, very impressive. I'll see the floor. Thank you. Congrats again for the great quarter.

Thanks, Sanjit.

Our next question comes from Raimo Lenschow with Barclays.

Hey, congrats from me as well. And two quick ones. Dev, what we saw this quarter in terms of what we haven't seen for quite a while on the EA side. You talked about new customers starting to come back and doing more deals, etcetera. Can you talk a little bit about what you're seeing there in terms of what people are doing on that side? Is that kind of more regulated industries that can't go to Atlas, or is it like post-pandemic investments? And then I had one follow-up for Michael on the deferred side?

Yes, many of our EA customers are expanding their use of MongoDB in the enterprise, some driven by cultural reasons where they just feel comfortable running workloads in their own data center and want to continue to do that. The benefit for them is that when they decide to move to the cloud, they don't have to rewrite one line of code. There are also customers limited by the industry they operate in who can’t move to the cloud as quickly as they would like to, and that's where EA comes in.

Yeah, okay, but you do see it coming back now after the pandemic as well. And then, Michael, on the deferred side, like the early renewals, what’s driving those big early renewals? Did you push for it or is that like a year-end benefit? It seems unusual without you kind of pushing for it.

Yeah. I think this is an example of really customer demand responding to their needs. We've been trying to make it increasingly easier to adopt and use MongoDB and to strip away some of the incentives that our sales folks had for doing things artificially. So it's much more customer-centric. This is really a result of them looking at their own demand profiles internally, aggregating demand and being confident that they will be able to expand more, and therefore, looking for the best possible commercial terms.

Perfect. Congratulations. Really good news.

Thanks, Raimo.

Our next question comes from Brad Reback with Stifel.

Great. Thanks a lot. Dev, you had mentioned the hiring of Peter, CMO, and Michael, you talked about some delayed marketing spend as a result. Can you give us a high-level sense of what maybe some of the changes the marketing go-to-market will be going forward?

Yes, I think Peter wanted to do a comprehensive review of all marketing programs that were underway. There won't be major swings in strategy, but he is making some optimizations around doubling down some areas and pulling back in some other areas. So I don't think you'll see drastic changes. He's also building tighter relationships with the sales organization, and he and Cedric Pech, our CRO, are working closely together to make sure the marketing team is aligned with the sales efforts around going up-market as well as down-market. So that's what's happening, and we're thrilled to have Peter on the team.

Great. And Michael, maybe one quick follow-up for you last quarter, you mentioned some specific 2Q to 3Q seasonal trends within Atlas. Anything we should think about as it relates to 3Q to 4Q seasonal trends as we head to the end of the year?

Thanks.

Yes. I think there are a couple of different ways to think about that. Within Atlas, as we mentioned, Q1 is typically softer, and we were trying to put that in context of the strength that we saw in Q2, and certainly the results in Q3 were strong and compared favorably when you sort of adjust for that seasonality. The only thing I'd call out that's probably important in terms of Q4 seasonality is two things. We had a very strong year-ago year in Q4, particularly in Atlas. And on a more macro basis, Q4 tends to be disproportionately Enterprise Advanced-centric. A lot of the renewal base as it relates to workloads tends to disproportionately skew towards Enterprise Advanced in Q4, so that's another factor to keep in mind.

That's great. Thanks very much, guys.

Thanks, Brad.

Our next question comes from Brent Bracelin with Piper Sandler.

Good afternoon. Thanks for the question. It's incredible to see the return to fifty percent fast growth for the first time in two years. On the drivers of the growth here in acceleration, it looks like there’s not only strong Atlas new customer growth, but the Atlas usage in particular was very strong, even actually stronger than last quarter. So, walk me through what you're seeing across the broader side of customers and what's driving higher Atlas usage on a per-customer basis and one quick follow-up on renewals?

Sure, Brad. Thank you. A few different things. You have to think about the mix overall. We don't run the business on a product basis; we run it on a channel basis. Overall growth is driven by new business and then expansions of existing behavior. So it continued to be another strong new business quarter within Atlas workloads. That new business doesn't tend to have as big an immediate impact, whereas under Enterprise Advanced you've got the term license component recognized under six oh six. In terms of expansion, we've seen consistent and strong cohort behavior across the expansion. I mentioned in the prepared remarks that for Atlas during this quarter we saw higher than typical cohort behavior, and that drove some of the Atlas outperformance. You can see from our numbers that the average revenue per direct sales customer is up a little bit year-over-year and up sequentially.

Absolutely. And I'm just quickly on the renewals, short-term of forty-nine million dollars sequentially. You talked about some data, early renewals. Can you remind us why someone would be motivated to renew early? Would it be tied to some of the spending rebound as well?

Sure. That's part of why we wanted to call it out. This was atypical. We've said for some time that deferred revenue and the calculated billing is not a particularly insightful metric, and that continues to be the case. But just given the behavior in Q2, we wanted to call that out. These were Atlas customers, and as we discussed, that doesn’t affect the revenue; Atlas revenue is recognized on consumption. This reflects the increasing strategic or mission-critical nature of Atlas in those accounts. They are looking at their run rate, seeing it increase, and while they may get benefits from their initial commercial deal, they want to ensure they're getting the best commercial terms and enter into more advanced contracts.

It is very clear and helpful with color. Thank you.

Our next question comes from DJ Hynes with Canaccord.

Hey, thanks guys. Congrats on an awesome set of numbers here. Two questions. I’ll start with you, Michael. Just kind of building off the thread that Brent started around expansion. I know you guys don’t get granular with disclosure around net revenue retention metrics and north of one hundred twenty is great. But is it fair to think that you're seeing that metric kick higher? I think it makes sense given net adds have been strong, but they've been pretty consistent for the last five, six quarters, but growth has been accelerating. Is that one of the drivers?

Yes, I would say that the net air expansion rate has been strong at that north of a one hundred and twenty percent level. When we look at the underlying cohort dynamics, they have consistently been strong. The success has really been a mix of adding new customers and expanding within existing ones; a lot of times particularly with Atlas, new customers aren’t necessarily spending at their full levels right away which blurs the lines between a new customer land and expansion.

That makes sense. And then Dev, I want to ask you a competitive question. My sense is that Reddit is talking to public investors a bit more. So maybe could you spend a minute touching on competitive differentiation there? I don’t know if that’s key value versus document or maybe use cases where they make more sense than you and vice versa.

Yes, sure. Reddit is predominantly used as a front-end cash and so that was a use case that a lot of people used MongoDB for in the early days. We have a much broader set of capabilities as a document model. We support many different types of workloads between key-value, relational joins, time series, graphs, etc. We also support multi-document asset transactions. We have lots of financial services customers using us for mission-critical workloads. The breadth and capabilities of our platform are far wider and superior. Customers frequently tell us they can't keep using new technologies for every new use case as it's a challenge to manage different data technologies. It makes life challenging, and they're gravitating towards more modern platforms. That's why we're winning; it's very rare that we go into battle with Reddit, as it’s easy to differentiate our offerings.

Very helpful. Thank you guys.

Our next question comes from Kash Rangan with Goldman Sachs.

Hey Dev and team, congratulations on a fantastic quarter. Dev, I'm curious about Atlas. Looking two to four years out, what kind of scale of applications do you see Atlas supporting? What technological breakthroughs are you looking for in the core system to achieve what MongoDB could accomplish three or four years from now?

As one of the advantages of MongoDB, from day one, it was built on a distributed system, allowing us to scale out environments and deal with massive data and high-performance requirements. Existing relational technologies struggle with modern applications' increasing demands. We are focused on enhancing replication for data resiliency, scaling out, workload isolation, and building materialized views to optimize performance. We are pushing the envelope on performance and scale, and as long as we maintain our distributed architecture, we can serve demanding customers very well. That's why sophisticated customers like Coinbase are using MongoDB, as no other platform can meet their needs.

Wonderful. Thank you very much. Happy holidays, Dev.

Thanks, Kash.

Our next question comes from Karl Keirstead with UBS.

Oh thank you. I wanted to ask you about the EA business. If we can go back to that twenty percent growth, it is an acceleration from mid-teens over the last couple of quarters. If it was not the EA business that was the beneficiary of these early renewals, what would you attribute the growth rate acceleration to? Michael, I know you mentioned new business demand, but maybe you could elaborate.

Yes, certainly. I think this speaks to the fact that while we're seeing a lot of Atlas adoption, not every customer is ready to be in the cloud. Our goal is to provide customers choice. Enterprise Advanced could serve as a great setup, as Dev alluded, to potentially transitioning to the cloud when customers are ready. More broadly, it speaks to the fact that the MongoDB value proposition resonates with customers. Customers are not as cloud-forward yet are continuing to expand their MongoDB footprint, driving a better-than-expected quarter.

Got it. That’s helpful. Then Michael, just if you don't mind, back on deferred revenue: does it feel like this early renewal, larger multiyear commitment phenomenon is one-off, or does it feel like the start of a trend? Should we be tempered in our growth estimates for 4Q and 1Q, if indeed some deals were pulled forward?

Yes, I would say it's both. I think it's a one-off, but it's also a directional trend, as Atlas becomes more strategic within accounts. But at least in the near term, think of this more as a one-off. That's part of the reason we wanted to call it out, so people didn't extrapolate from the numbers unduly.

Our next question comes from Patrick Walravens with JMP Securities.

Great. Thank you, and let me add my congratulations. Dev, I've been listening carefully to the broader themes you've been mentioning, such as the massive cloud transformation, the enterprise, the benefit of distributed architecture. I've been trying to figure out what MongoDB, Snowflake, Datadog, and Confluent all have in common. You guys are all already at super high growth rates and accelerated in Q3. Do you have any thoughts on that?

Thanks for your question. A couple of things: We are going through a massive enterprise transformation; people are moving workloads to the cloud. They've taken time to get there, but now they're moving aggressively, not just for secondary apps but also mission-critical workloads. They're also making thoughtful technology choices, opting for best-in-breed solutions in the marketplace, ensuring they’re utilizing the right tools to increase their speed of development. All these trends play to our strengths and that's why you're seeing increasing adoption of MongoDB for mission-critical applications in the cloud.

And our last question today comes from Fred Havemeyer with Macquarie.

Thank you. So, MongoDB, you recently announced pay-as-you-go for Atlas. Last quarter you announced several strategies, but MongoDB is looking to align database consumption deployment and utilization more tightly than historically. I would also like to point out that earlier this year you announced UI Path had adopted MongoDB. Then how should we be thinking about Atlas growth drivers? Are we seeing traditional enterprises adopting Atlas for more agile development cycles versus innovative startups that are rapidly growing on your platform?

Thank you for your question. One clarification: the pay-as-you-go that we announced at AWS is only new to the marketplace on AWS. We've always had a self-serve option without any commitment, but now it helps to simplify customer engagement. We're also paying attention to startups using MongoDB, as that shows future potential. We see MongoDB at the center of next-generation developer ecosystems, which is a good sign for our future.

Yes, thank you. One more quick follow-up for Michael: can we get an update on how many of your customers over one hundred thousand dollars ARR would qualify for that level of spend on Atlas alone? Are you seeing any customers approaching north of one million dollars in ARR?

Yes, we reported earlier this year that roughly over sixty percent of the one-hundred K customers would have qualified just on their Atlas spend alone. There's been no material change to that number.

This concludes our question-and-answer session. I'd like to turn the call back over to Dev Ittycheria for any closing comments.

Thank you for joining us today. As you know, we had an excellent quarter and I think just to reiterate, our strong performance is due to our consistent execution and the confluence of secular trends reinforcing our advantages and influence. Our Q3 results give us confidence to continue investing and planting seeds for future growth. I wish everyone a happy, healthy, and safe holiday season, and we look forward to talking to you soon. Take care.