Earnings Call Transcript - MDB Q2 2022

Operator, Operator

Good day, and welcome to the MongoDB Second Quarter Fiscal Year 2022 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 this event is being recorded. I would now like to turn the conference over to Brian Denyeau from ICR. Please go ahead, sir.

Brian Denyeau, Moderator

Great. Thank you, Chuck. Good afternoon, and thank you for joining us today to review MongoDB’s second quarter fiscal 2022 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 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 our 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.

Dev Ittycheria, CEO

Thanks, Brian, and thank you to everyone for joining us today. I will start by reviewing our second quarter results before giving you a company update. Before diving in, I want to share that today marks my seventh anniversary at MongoDB. I’m incredibly proud of how much progress we’ve made over the past seven years. We went from being a small private company with an interesting technology to disrupting one of the largest markets in all of software. Along the way, we changed how open source software is licensed, we introduced a new cloud service that required us to both partner and compete with the largest cloud providers, and we grew revenues 20-fold with a compound annual growth rate of over 50%. I’m incredibly grateful to all the amazing people in MongoDB and to our customers and partners around the world who made this happen. As proud as I am of the amazing journey we’ve had, I’m even more optimistic today about our opportunities ahead. Looking quickly at our second quarter financial results, we generated revenue of $199 million, a 44% year-over-year increase and above the high end of our guidance. We grew subscription revenue 44% year-over-year. Atlas revenue grew 83% year-over-year and now represents 56% of our revenue. And we had another strong quarter of customer growth ending the quarter with over 29,000 customers. Businesses across nearly every industry have realized that in today’s highly dynamic global markets, speed of development is a meaningful competitive advantage. Businesses that can develop software faster are able to improve their products faster, and ultimately, grow more quickly than their competition. We believe our strong second quarter results are a clear indication that customers view MongoDB as a critical platform to accelerate their digital innovation agenda. Customers of all types are using MongoDB because they can develop so much faster using our platform to build new applications and re-platform legacy applications across a broad range of use cases to drive their business forward. Fundamentally MongoDB’s application data platform offers three intrinsic advantages. First, MongoDB’s document model is designed around how developers think and code, unlike legacy data technologies. This enables developers to be far more productive and build applications faster, as compared to any other technology. Second, MongoDB’s document model is a superset of other data models; tabular, key value, time series, graph, and other kinds of data relationships can be easily created using documents. The document model enables MongoDB to address a wide range of use cases and reduces the need for customers to use niche technologies that only serve a single purpose. Third, MongoDB is designed for performance and scale. With MongoDB's sophisticated capabilities to replicate, manage, and distribute data at massive scale, organizations increasingly choose MongoDB to address the most demanding requirements. Legacy technologies are fundamentally not designed for today’s scale and performance expectations, requiring developers to spend an enormous amount of time working around their architectural limitations. The continued success of Atlas shows that speed is of paramount importance to our customers. Atlas is the best way for customers to enjoy the benefits of our platform, as the time to value can literally be only a matter of minutes. Atlas had another excellent quarter, accelerating to 83% year-over-year growth, while approaching a $0.5 billion run rate. We also had another strong quarter of Atlas customer additions from self-serve to enterprise customers. Our second quarter results give us even more conviction to continue investing in both our product portfolio and our go-to-market initiatives. Starting with go-to-market, our field sales team is increasingly being pulled into higher level strategic conversations at the C-suite of the largest companies in the world and we are adjusting our approach to more effectively serve that audience. Last year we expanded with increased focus on our most promising customers. Our hypothesis was that by going deep into an account with more resources, it would position us more strategically and allow us to penetrate the account more quickly. Those investments produced excellent returns and most accounts that ran this experiment grew faster than we expected. This is giving us confidence to expand this deeper coverage model to more accounts this year, while also focusing on expanding our field sales capacity in all regions. Our inside sales team is firing on all cylinders and had another great quarter. The strong product market fit of Atlas for this channel, along with the changes we introduced last year to make it easier for customers to start using Atlas, have had a positive impact. Given the results, we are focused on expanding our inside sales capacity in our regional hubs around the world to capture more of the large opportunity we see in this channel. Finally, turning to self-serve, this channel is a cost-effective way to acquire large numbers of customers and is a critical lead generation vehicle for our sales organization. We are focused on increasing our sophistication on digital acquisition and product-led growth techniques to increase the top of funnel and optimize mid-funnel conversion rates. This is an iterative process with a lot of experimentation that is yielding promising results. Turning to our product roadmap, we continue to invest both to extend our lead in the core database space, as well as to mature and grow our merchant products. At MongoDB.live, our User Conference held in July, we made several significant product announcements that further advance our vision. We focused on two themes ease-of-use and expanding the capabilities of our platform to make it more compelling for customers to standardize on MongoDB. First, on ease-of-use, making it easy for developers to use and get value out of MongoDB has been the core of our DNA since the founding of the company. Our announcement of Atlas Serverless takes ease-of-use and developer productivity to the next level. With Serverless, customers can get started with MongoDB without having to pick a specific machine type or size. The application connects to Atlas and we handle the elastic scaling of compute and storage seamlessly, whether an application scales quickly or has spiky traffic patterns. This dramatically simplifies life for our customers because they no longer have to do capacity planning or manually intervene to adjust the size of the deployment. We expect Serverless to drive more customer demand because getting started on and using Atlas just became even easier. Next, for customers who want to benefit from our sharding features to manage a massive amount of data, we introduced Live Resharding. As a reminder, sharding is a method for horizontally distributing data across multiple machines. MongoDB uses sharding to support deployments with very large amounts of data and high throughput operations to prevent any single machine from becoming a bottleneck. Previously, when a customer wanted to shard data, the customer had to pick a shard key, essentially the parameter that would be used to partition the data. However, we know an application’s requirements can change quickly, making it more beneficial to partition data using a different shard key. Live Resharding allows users to easily change the shard key when this happens. This feature, which is not available on any other platform, will make it far easier for customers to start using our sharding capabilities and seamlessly redistribute data when the requirements of their application or their business change. Finally, our announcement of the Versioned API addresses a structural issue with all databases. Historically, when a new database version is introduced, there are feature changes that can break existing application functionality and create significant rework for development teams. Invariably, some organizations prefer to stay on an older version of a database to avoid this risk. But the downside is that they then cannot take advantage of new features available in the latest version. Our introduction of the Versioned API solves this problem. The Versioned API feature lets you upgrade your MongoDB server at will. This groundbreaking capability allows customers to decouple the application development lifecycle from the database lifecycle, so they only need to update their application when they want to introduce new functionality, not when they upgrade the database. Of all the features we announced in MongoDB.Live, the Versioned API received perhaps the most enthusiastic customer reception. Regarding the second theme, we remain focused on expanding the capabilities of our platform. Because customers consistently tell us that they want a modern general-purpose platform that precludes the need for single-purpose technologies in order to reduce back-end infrastructure complexity and increase the speed of innovation. We introduced native time series support across our entire platform. Time series collections, clustered indexing, and window functions make it easier, faster, and lower-cost to build and run applications like IoT. While we were able to address this fast-growing use case in the past, with these new features, we can compete for even the most demanding time series workloads. We also added a depth of functionality across our merchant products, perhaps most notably in Atlas Search. We’re enhancing search with custom synonyms and function scoring, which allow e-commerce customers to provide more relevant and geographically targeted results. We believe these features will make Atlas Search an excellent solution for even more use cases. Finally, we also recently announced that we achieved FedRAMP Ready status. This designation allows us to capture the substantial demand for MongoDB Atlas across federal and state government agencies and ISVs that serve that market. Our recently announced product enhancements enable customers to use MongoDB for an even broader set of use cases and represent a meaningful step forward on our journey to deliver the preeminent modern application data platform. Now I’d like to spend a few minutes reviewing some customer wins and interesting use cases from the second quarter. JetBlue is New York’s hometown airline with over 100 destinations across the U.S., Caribbean, and Latin America, and between New York and London. To overhaul their core e-commerce app, JetBlue chose the MongoDB application data platform. MongoDB's flexible data model allows JetBlue to build dynamic customer experiences within their ticketing application, as well as predictive analytics in real-time. DataRobot is a leader in augmented intelligence, delivering a trusted AI platform that empowers organizations to make better data-driven business decisions faster and at scale. MongoDB has powered the company’s SaaS platform from its inception, and this quarter DataRobot migrated from MongoDB Community Edition to Enterprise Advanced for compliance encryption features and support. Our enhanced relationship will help DataRobot continue to innovate and support its global customer base, as users leverage AI to transform their businesses. Roma Capitale is the governing body for the City of Rome and manages services across transport, welfare, and education for over 4 million citizens. In a bid to drive a new smart city approach, Roma chose MongoDB as part of the underlying data platform to modernize its entire content management system and drive a new comprehensive single-view environment for development. As a result, Roma jumped from 15th place to fourth in the latest Italian Smart City ranking and was able to bring new online digital opportunities to its citizens. PT Visionet Internasional or OVO, a leading Indonesian payments, rewards, and financial services platform, relies on MongoDB to power its core digital payments platform that serves over 115 million devices. As part of a strategic initiative to unify all of its database workloads spread across multiple databases and hosting platforms, OVO chose MongoDB Atlas Enterprise to consolidate its tech stack and move to Google Cloud. OVO expects this modernization to increase developer productivity, accelerate new feature release cycles, and consolidate workloads, making the overall infrastructure feature-ready. In summary, we had another excellent quarter. Our customers want to innovate faster and are looking for a scalable general-purpose application data platform that will give their developers the freedom to move quickly. MongoDB is increasingly seen as uniquely positioned to fulfill this need. With that, I’ll now turn it over to Michael.

Michael Gordon, COO & CFO

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 2022. First, I’ll start with our second quarter results. Total revenue in the quarter was $198.7 million, up 44% year-over-year; subscription revenue was $191.4 million, up 44% year-over-year; and professional services revenue was $7.4 million, up 27% year-over-year. We exceeded our expectations in both Atlas and Enterprise Advanced, but our outperformance was particularly notable in Enterprise Advanced. As you know, Enterprise Advanced has a more immediate impact on revenue due to the fact that under ASC 606 we’re required to recognize the term license component of revenue upfront. Overall, Atlas’ strong performance continues to be the largest contributor to our growth. Atlas grew 83% in the quarter compared to the previous year and now represents 56% of total revenue, compared to 44% in the second quarter of fiscal year 2021 and 51% last quarter. During the second quarter, we grew our customer base by over 2,200 customers sequentially, bringing our total customer count to over 29,000, which is up from over 20,200 in the year ago period. Of our total customer count, over 3,600 are direct sales customers, which compares to over 2,500 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 now have a direct sales relationship. The growth in our total customer count is being driven in large part by Atlas, which had over 27,500 customers at the end of the quarter, compared to over 18,800 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 ARR expansion rate above 120%. We ended the quarter with 1,126 customers with at least $100,000 in ARR and annualized MRR, which is up from 819 in the year ago period. The continued strong growth in customers with $100,000 or more in ARR is an indication of the success of our land and expand go-to-market strategy and the fact that we’re increasingly becoming a strategic partner and a database standard for our customers. Moving down the income statement, I’ll be discussing our results on a non-GAAP basis unless otherwise noted. Gross profit in the second quarter was $142.9 million, representing a gross margin of 72%, which is consistent with last quarter and consistent with 72% in the year ago period. Overall, we are pleased with our gross margin performance, which is only seeing a modest impact from Atlas as it becomes a bigger portion of our revenue despite its infrastructure component. We continue to expect that we’ll see a modest reduction in overall company gross margin as Atlas continues to grow as a percentage of our revenues. Our operating loss was $11.5 million or a negative 6% operating margin for the second quarter compared to a negative 7% margin in the year ago period. Our outperformance versus our operating loss guidance was driven primarily by revenue outperformance. Net loss in the second quarter was $15.2 million or $0.24 per share based on 63.4 million weighted average shares outstanding. This compares to a loss of $12.7 million or $0.22 per share on 58.4 million weighted average shares outstanding in the year ago period. Turning to the balance sheet and cash flow, after raising almost $900 million in a follow-on equity offering during the quarter, we ended the quarter with $1.8 billion in cash, cash equivalents, short-term investments and restricted cash. Operating cash flow in the second quarter was negative $19.8 million. After taking into consideration approximately $2.9 million in capital expenditures and principal repayments of finance lease liabilities, free cash flow was negative $22.7 million in the quarter. This comparison shows negative free cash flow of negative $15 million in the second quarter of fiscal 2021. I’d now like to turn to our outlook for the third quarter and full fiscal year 2022. For the third quarter, we expect revenue to be in the range of $202 million to $204 million. We expect non-GAAP loss from operations to be $25 million to $23 million and non-GAAP net loss per share to be in the range of $0.42 to $0.39 based on 66.4 million weighted average shares outstanding. For the full fiscal year 2022, we now expect revenue to be in the range of $805 million to $811 million. For the full fiscal year 2022, we now expect non-GAAP loss from operations to be $67 million to $62 million and non-GAAP net loss per share to be in the range of $1.20 to $1.13 based on 64.6 million weighted average shares outstanding. To summarize, MongoDB delivered excellent second quarter results. We’re driving high levels of growth at scale, driven by our large market opportunity and strong execution. We continue investing to capture the large opportunity ahead of us. We’re seeing attractive returns on those investments and we’re excited about our positioning for the future. With that, we’d like to open up to questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. The first question will come from Sanjit Singh with Morgan Stanley. Please go ahead.

Sanjit Singh, Analyst

Thank you for taking the question and congrats on another really impressive quarter. Dev, maybe I wanted to understand the Atlas growth; I think on a sequential dollar basis, you almost doubled the amount of revenue that you added in Q1. If we could sort of unpack that along with a couple of different buckets, sort of existing customers, expanding with Atlas versus migrating either Enterprise Advanced or another database versus contribution from net new, particularly, customers, you may have thought of the quarter, but also maybe the customers that you have added last year, was that you saw a big uptick, we could sort of unpack the sources of growth of that was and that would be helpful?

Dev Ittycheria, CEO

Sure. So, first of all, what I’d say is that, customer additions remain robust across all three channels. So we’re seeing strength in all geographies, including places like India and Latin America. And we frankly also see strong Enterprise adoption of Atlas. Atlas is increasingly seen as a destination for mission-critical applications. And as we said last quarter, over 600 customers spend north of $100,000 on Atlas alone. And self-serve remains a critical channel and a customer acquisition vehicle. So, over 50% of our Atlas ARR was from customers originally sourced in the self-serve channel. I’d also say that multi-cloud is a huge selling point for Atlas; multi-cloud improves resilience. And as you know, cloud providers do have outages and they can leverage the best features of each cloud provider and avoid lock-in. In terms of breakdown of where these customers are coming from, I think I would just say, we’re seeing healthy growth of both new customers, as well as expansion of existing customers. And yes, the customers we’ve acquired over the last few quarters are growing; expansion rates for Atlas are very strong and so all of them are essentially contributing to the growth of Atlas.

Michael Gordon, COO & CFO

I would like to add two thoughts. First, regarding the year-over-year comparison, Q2 was easier for Atlas as we dealt with a broad but modest COVID impact last year, which led to slower account expansion. Secondly, as you mentioned, there is some seasonality, and Q2 generally performs much better than Q1, so that trend is reflected in the numbers as well.

Sanjit Singh, Analyst

That’s good context, Michael. And then as my follow-up, Dev, MongoDB 5.0 versus 4.0. Anyway, sort of you could sort of frame out how significant this release? I mean, 4.0 was a major release, right? There were a lot of key enterprise features, multi-document ACID support, sort of a game-changing at least in my view. How should we think about 5.0 versus the 4.0 cycle?

Dev Ittycheria, CEO

Well, it’s a question I actually haven’t thought of. But as you said, 4.0 was significant for us because it introduced a big feature with multi-document ACID transactions, which at the time was the biggest objection for enterprises or anyone wanting to use MongoDB for mission-critical use cases. That objection was obviously taken off the table. What I would say with 5.0 is we’re just continuing to double down on it, one, expanding our platform, obviously, with all the additions that we’re making, especially with native time series support, and we’re also making it far easier for customers to use MongoDB. As you can imagine, with over 29,000 customers, we have customers of all shapes and sizes, of all levels of sophistication. And we really want, frankly, and this is in our DNA, we really want the database to be the way that people get their work done. And so we just want to make it really easy for people to use MongoDB and obviously Atlas is the best way to expose a lot of the features. And so I would just contrast, I would say, 4.0 was all about convincing people that we truly could be a general-purpose, mission-critical platform. And 5.0 is all about expanding our platform and making MongoDB even easier to use so that people can get started on MongoDB more quickly.

Sanjit Singh, Analyst

Makes total sense, Dev. Congrats on the stellar results. Thank you.

Dev Ittycheria, CEO

Thanks, Sanjit.

Operator, Operator

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

Raimo Lenschow, Analyst

Hey, thanks and congrats from me as well. Can you talk a little bit about, Dev, what you see out in the field in terms of customer interest to do more stuff again? So I’m looking at your self-service Atlas started to kind of reaccelerate on growth. But we’re coming also out of the pandemic. What do you see in terms of pipeline build and appetite for bigger projects coming through again? And I had one follow-up for Mike.

Dev Ittycheria, CEO

We are definitely experiencing increasing demand. One point we mentioned in our prepared remarks is that we've identified a group of promising accounts and considered how we could accelerate their growth. We realized these accounts had a fondness for MongoDB, but our share of their total database spending was relatively low. By deploying additional resources and having a dedicated representative for these accounts, we began to see impressive results. These accounts started to grow at a faster pace, and we aim to replicate this success with other promising clients. While they represent a small fraction of our overall customer base, they are among the most sophisticated and demanding clients, and we are selective in our approach. These clients are inclined to utilize our Atlas cloud services, and we have reached some agreements with them to increase their usage; they already have a portion of their budget allocated to Atlas. We recognize strong advocates within these accounts, and we also see significant potential for growth. For our most demanding customers, we are receiving very encouraging feedback, which boosts our confidence to expand this initiative further this year and into next year. This represents our highest-value segment. Additionally, we are seeing digital-native companies and independent software vendors with demanding needs increasingly choose or deepen their commitment to MongoDB, which is something we are very excited about for our long-term prospects.

Raimo Lenschow, Analyst

Okay. Perfect. And then the follow-up for Michael, just, if I look at your cash position now, it’s obviously kind of after the action last quarter kind of a bit bigger. Can you just talk a little bit about your philosophy around cash, how much you want to carry to run the company, etc.? Thank you.

Michael Gordon, COO & CFO

Sure. Yeah. Thanks. Obviously, the cash was bolstered in part by the equity offering we did during the quarter. We talked about that as an opportunistic financing. I think we just want to make sure that we have the full degrees of freedom that we think makes sense in terms of maximizing the long-term opportunity and to sort of invest in a business as long as we continue to see good returns from that. So I think that’s probably the key points there.

Raimo Lenschow, Analyst

Okay. Perfect. Thank you. Congrats.

Operator, Operator

The next question will come from Kash Rangan with Goldman Sachs. Please go ahead.

Kash Rangan, Analyst

I’m sure you will get very good returns on cash. Thank you so much, Raimo. My question was on Atlas. It looks like the adoption curve for Atlas is turning out to be even more aggressively positive than one would have expected given that its cloud deployment? If you can just compare and contrast the kind of workloads that Atlas is able to take on relative to its life history versus the core MongoDB platform and what are things that have surprised you with the adoption curve? And what does this mean for where this business could look like in the next three to four years in terms of the scale and scope of customers you could take on, had versus the standalone MongoDB on-prem database server? Thank you so much.

Dev Ittycheria, CEO

Yeah. So one of the key differences with Atlas and say deploying on-prem is that developers can move very, very quickly, without needing their operations team to set up the underlying compute and storage infrastructure to get going. So, and by definition, the cloud has elastic scalability and so people can increase their instance sizes or their capacity very, very quickly, without having to go back and ask the ops teams to build out more infrastructure. So the ability for development teams to move very, very fast is even more pronounced on a cloud service like Atlas than it is on prem. The second thing I would say is that, Atlas has clearly become a mission critical platform. In the early days, there were probably people who were, obviously, being a new service and people didn’t know what to expect. You saw more dev and test workloads, perhaps, peripheral or Tier 3 workloads moving onto Atlas. But as people got more and more experience with Atlas, as we added more enterprise features to Atlas, people became increasingly more comfortable, and now we’re seeing very, very large and demanding applications move to Atlas, even from some of the more conservative mainstream organizations out there. So what we’re really seeing now is enterprise adoption of Atlas at scale.

Kash Rangan, Analyst

Got it. So it’s not a limiting factor itself as it relates to Atlas as a platform, right? We have everything that you get with MongoDB plus more the deployment flexibility, the ability to scale, and so on. Is there a point where Atlas becomes even more scalable, even more functionally complete than the core MongoDB platform?

Dev Ittycheria, CEO

Well, I think we said this and this happened a couple of years back. I mean, we got to feature parity on Atlas far faster than we expected and now we actually release new feature development Atlas First and then we catch up on Enterprise Advanced. And so I would say that in terms of feature completeness and scalability, Atlas is the best solution in the marketplace today. And I think you’ll see us continue to invest aggressively in Atlas, because every customer that we know, even the customers who are predominantly on-premise, they know that the benefit of using MongoDB is that they can start on-prem, but they have a very seamless path to the cloud. There’s no forklift upgrade. There’s no rewrite of the application code. It’s just a very seamless migration path. And so there’s different customers based on the regulatory environment they’re in, compliance reasons, sometimes even cultural reasons. They may be moving more slowly. But every customer has a very clear migration path to the cloud and we believe the ultimate destination will be Atlas.

Kash Rangan, Analyst

Congrats, Dev. Thank you so much.

Dev Ittycheria, CEO

Thanks, Kash.

Operator, Operator

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

Brad Reback, Analyst

Great. Thanks very much. Gentlemen, as you think about the last couple of years, you’ve obviously introduced a bunch of new products. So, as we think of where we are today, are those products a meaningful amount or a meaningful contributor to new consumption that we’ve seen quarter-over-quarter, year-over-year or is that really yet to come?

Dev Ittycheria, CEO

Yeah. So, Brad, I think that’s a good question. Again, I just want to remind you and everyone else that the new product usage, the revenue shows up as Atlas revenue. But let me just give you a little bit of color on each of the products and what we’re seeing. On Search, what’s becoming very, very clear is that customers are really, really attracted to being able to combine a database with a search engine as one endpoint and as a managed service that becomes very, very attractive. They don’t want a disparate MongoDB deployment and then some sort of elastic or solar deployment. To do that on one platform becomes really attractive and we’re seeing a really interesting uptick there. On Realm Sync, which, by the way, Sync was just G8 in February. We’re seeing some really interesting customer use cases in particular in retail and logistics, where people want to do inventory management and logistics, and we’re seeing some really interesting customer traction there. On the Data Lake product, we’re seeing a lot of interest, especially from some of our larger customers, to basically improve the economics of keeping large volumes of data accessible. There’s a challenge of that either they have to migrate the data completely, but then you can’t really access it, or you have to delete the data. And with online archive, you can actually get the benefits of having all the data, but in a very cost-effective way. We also see that people are building more and more interesting smarter applications, where they’re leveraging analytics to build better customer experiences. And so as that becomes more pervasive, you’ll see use cases like real-time analytics and so on and so forth becoming more and more prevalent. And then, what I would say is that even though time series is new, we’ve had some interesting traction on time series. Again, customers are attracted to rather than buying some sort of bespoke solution, being a part of a single platform, and we can leverage the existing MongoDB installed base to go after more business. And so, I would say that’s the color I provide in terms of new customer traction, and we’re quite pleased with how things are progressing.

Brad Reback, Analyst

That’s great. Thanks very much.

Operator, Operator

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

Brent Bracelin, Analyst

Thank you. Good afternoon. Keeping with the discussion on Atlas, the third quarter has shown a significant growth trend. When I look at customer addition metrics compared to usage metrics, this quarter indicates a substantial increase in usage. My first question is what caused the rise in Atlas usage this quarter? You mentioned over 100,000 enterprise customers utilizing the platform. Is the increase primarily due to enterprise clients, or are there other contributing factors? Lastly, I have a quick follow-up question.

Dev Ittycheria, CEO

The performance of Atlas is strong across all three channels. However, the enterprise adoption of Atlas is particularly noteworthy. We're observing that customers are becoming increasingly comfortable with deploying mission-critical applications on Atlas, even with demanding requirements, which significantly contributes to our growth. Additionally, multi-cloud strategies are becoming more important. Customers appreciate the ability to protect and preserve their investments in applications, even as they switch cloud providers or run applications across multiple clouds. We're also seeing interesting demand in regions such as India and Latin America, especially within the mid-market channel. This reinforces our confidence in the significant opportunity we are pursuing.

Brent Bracelin, Analyst

Great. And then Michael for you…

Dev Ittycheria, CEO

Yeah. Brent, just…

Brent Bracelin, Analyst

I know…

Dev Ittycheria, CEO

Okay. Let me add one thing before addressing your question. I believe people understand the year-over-year aspect due to the easier comparison, but I want to emphasize the sequential aspect, which I consider very important, as Q2 typically performs better than Q1. Looking ahead to the second half of the year, we anticipate a more challenging comparison for Atlas. Please continue.

Brent Bracelin, Analyst

Got it. So seasonal factor help there. Now my question is still on Atlas. It’s just on the gross margin side. I know overall gross margins downtick slightly. But if I look at kind of gross versus subscription gross margins, you’re well north of 75% for the last three quarters, even with a pretty material mix shift to Atlas. So do you think that with Atlas over half of the revenue mix that sits 75% subscription gross margin is sustainable?

Michael Gordon, COO & CFO

I don't think we can say we've reached the bottom yet, but we are very pleased with how we've executed our strategy. There are still additional opportunities ahead of us. While it's great that Atlas contributes 56% of our revenue, there remains a margin gap and a significant portion of our revenue to address. We still have work to do on improving Atlas's gross margin, and while we haven't hit bottom, we are really satisfied with the progress we've made so far.

Brent Bracelin, Analyst

Sounds good. Thank you.

Operator, Operator

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

Jason Adder, Analyst

Yeah. Thank you. Dev, do you have a sense of how you’re doing versus the cloud players? I mean, obviously, your results speak for themselves. But do you track win rates there and any just color or commentary on your competitive position versus some of the house databases from the cloud providers?

Dev Ittycheria, CEO

Well, if you know anything about the MongoDB culture, we’re very focused on serving our customers, but also being quite aware of what our competition is doing and I’m pleased to report that our win rates against the competition are very, very high against both the standalone companies as well as the clones being offered by the cloud providers. Our win rates are really, really high. As I’ve said in the past, our biggest issue is deals that are going down that we’re just not aware of and those are deals that keep us up at night, because when you go head-to-head, our win rates are extremely high.

Jason Adder, Analyst

All right. And then just a quick follow-up on the multi-model capabilities of the platform. I know you have native time series now; I know you have graph and some other data models. Do you have a sense of how much of your customer base actually uses some of those capabilities? Can you track that?

Dev Ittycheria, CEO

In general, we can, and obviously, with these new capabilities, we can track usage. One of the benefits of a cloud service is you get much better fidelity in terms of what customers are doing on your platform. Yeah, and to underscore the point you just made is that the point that we make to our customers is that rather than having a bunch of bespoke solutions, and some of our competition has like 13 or 15 different database options, what people realize after the fact is that the challenge of managing, learning, managing, supporting all the different technologies, let alone dealing with how to query all that data, synthesize all that data, backup all that data, becomes an onerous management task. And so being able to consolidate it on a single platform becomes very, very attractive, which is why we’re seeing so much interest in Search, which is why we’re seeing so much interest in time series, even though it’s very early and why we think that our platform strategy is really working.

Jason Adder, Analyst

Thanks. Good luck.

Dev Ittycheria, CEO

Thank you.

Operator, Operator

The next question will come from Tyler Radke with Citi. Please go ahead.

Tyler Radke, Analyst

Thank you. Good evening. I wanted to start, Dev, you made an interesting comment in your prepared remarks, just around higher C-level engagement and I guess a couple of questions there. What specifically are you doing to support that? Is it hiring more experienced traditional enterprise sellers? And then, secondly, like, what do you think is driving that? Is it Atlas? Is it just overall standardization as they look at legacy migrations? Just to expand on that comment would be helpful? Thank you.

Dev Ittycheria, CEO

One of the things we learned about buying behavior in this space is that decisions are made workload by workload. Each time you develop or re-platform an application, you have to decide which database to use. In an account, there are many micro-decisions regarding these workloads, and you need to win them individually. The advantage of aiming for higher engagement is to become a widely accepted standard, where users don’t need permission to utilize MongoDB for app development. They can opt for MongoDB as a readily available product that's part of the approved framework of that organization. This strategy helps accelerate the process to becoming the standard and allows you to be seen differently than just another database a company might use. It's crucial to help clients understand how we can expedite their business growth, help them capitalize on new opportunities, and respond to emerging threats. This gives a significant competitive edge when building applications with MongoDB compared to alternatives. We've hired exceptional sales personnel and leaders, and we engage the entire organization, including C-level executives, in strategic discussions. For instance, Sahir Azam, our Chief Product Officer, Mark Porter, our Chief Technology Officer, along with myself and other leaders, contribute to these important conversations. Cedric Pech, our CRO, has a remarkable ability to build and scale organizations like this. Additionally, we have strong leaders in various regions who excel at this work.

Tyler Radke, Analyst

Thanks. And Michael, I had a follow-up for you. I think, in an earlier question, you referenced some more challenging comparisons in the second half on a sequential basis on Atlas. I’m just curious if you could expand on that. I think if we look back at least on a dollar basis added, the last few years, you’ve seen similar, if not even a little bit more kind of net new Atlas revenue added in Q3 than Q2. So just curious if you could expand on that and how we should kind of think about the shape of the Atlas trajectory for this year?

Michael Gordon, COO & CFO

Yeah. So it’s less about sequential and it’s more commenting that the first half of the year in the base period of the compare was an easier compare given the COVID impacts that we saw at the end of Q1 and then in Q2. So it’s really more of a year-over-year compare question than a sequential comment.

Operator, Operator

The next question will come from Karl Keirstead with UBS. Please go ahead.

Karl Keirstead, Analyst

Thank you. I’ve got two Atlas-related questions. Dev, a lot of developers are building apps for Azure and GCP. I think we all understand that the vast majority of Atlas revenues are on AWS. Could you give us a bit of a progress report on the mix from Atlas on GCP and Atlas on Azure? Thank you.

Dev Ittycheria, CEO

I don’t believe we provide exact details, but our business aligns closely with the market share of all three cloud providers. I would say that we are further ahead with GCP compared to their market share. Generally, our business correlates with the market share of the cloud providers. GCP stands out, and what truly distinguishes one cloud provider from another is the realization that migrating an Atlas workload to their cloud brings additional benefits. Customers who do this tend to utilize more of the services offered by the cloud provider, often spending significantly more with them than with us. Particularly, Amazon and Google have been more proactive in collaborating with the sales teams, resulting in an increase in deals. Microsoft appears to be beginning to recognize the potential benefits of this approach as well, but they are somewhat behind.

Karl Keirstead, Analyst

Got it. That’s helpful. And then maybe a second Atlas question, the Azure Cosmos DB vulnerability got a decent amount of attention over the last couple of weeks. I’m just curious whether you sense any change and focus on cloud database security exposures. And how and if that’s a differentiator for Atlas?

Dev Ittycheria, CEO

Yeah. So that’s a good question. Obviously, that news was quite recent in terms of what happened with the Cosmos breach, and just to level set, a security company discovered that it was possible to gain complete unrestricted access to accounts and databases of all the Azure customers, including their flagship product, Cosmos DB, and this vulnerability was introduced through integration with its Jupyter Notebook service. I would say that we have a very robust focus on security. Our products have a bunch of security certifications, including SOC 2, ISO 27001, HIPAA, PCI, etc., and we have layers of defensive controls and alarms in the event of suspicious activity. We spend a lot of time on product innovation and the other security, including using features like client-side field-level encryption, which allows customers to store data in Atlas without there being anyone outside of their organization can see the data. We utilize external security firms to perform regular penetration tests, same way an attacker would. We have a coordinated disclosure program where we encourage independent security researchers to contact us if they find a security issue in our products and we reward them accordingly. So we found tremendous value and output from our engagement with external security consultants, researchers, as well as our internal team and controls around vulnerability and discovery management. Thankfully, we’ve not had a breach of MongoDB Atlas. But we’re very, very focused on security. So it’s a core tenet of our offering.

Karl Keirstead, Analyst

Okay. Dev, thank you for that.

Operator, Operator

The next question will come from Pat Walravens with JMP Securities. Please go ahead.

Pat Walravens, Analyst

Oh! Great. Thank you and congratulations on the quarter. Hey, Dev, if you look at the five major use cases for databases, transaction processing, data warehousing, data science, stream processing, operational intelligence, where do you see the most opportunity for MongoDB?

Dev Ittycheria, CEO

Our foundations are in transaction processing, but we see significant opportunities in operational intelligence, or analytics, particularly real-time analytics for applications. We are not positioning ourselves as a data warehouse, but we will continue to invest in that area. This is a massive market, and we are well positioned to expand our platform and address a wider range of use cases. Customers are telling us that they prefer to utilize existing technologies for new use cases rather than adopting completely new tech. They want to run more on fewer platforms while benefiting from a variety of top-tier solutions. This is where we stand out, as we truly offer a general-purpose, mission-critical platform. The size and diversity of our customer base and the numerous use cases on MongoDB demonstrate that our platform can serve a multitude of functions.

Pat Walravens, Analyst

Great. Thank you.

Operator, Operator

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

Jack Andrews, Analyst

Good afternoon. Thank you for taking my question. I would like to ask for more information on the 5.0 release. It appears that one of the key features is the ability to have a quicker release cadence between major updates. Could you elaborate on what we can expect in terms of your priorities and focus regarding release timing?

Dev Ittycheria, CEO

We have a thorough process driven by our product management team, which involves input from our sales team, customer support, and technical sales, alongside top-down analysis to identify target areas. We also monitor our competitors to gauge their success, which influences our decisions on product development and release timing. In our industry, we don't simply launch a product and move on; we start with a minimum viable product and progressively add features to enhance it. For example, Atlas was launched five years ago and has seen substantial feature development since. Products naturally evolve over time, leading to ongoing discussions about introducing new features versus enhancing existing ones. It's a blend of judgment, art, and science. With our cloud services, we can add new capabilities much more rapidly than with on-premises versions. That's why we've adopted a quarterly release cycle, which enables us to roll out new features and fixes more quickly, while still updating our on-prem product annually. This approach helps us innovate quickly while meeting our customers' needs effectively.

Jack Andrews, Analyst

Thanks for the color. Just as a follow-up question, could you update us, perhaps, on progress with the systems integrators? Is there a way to frame the proportion of your deals that are maybe SI driven or SI influenced these days?

Dev Ittycheria, CEO

Yeah. We don’t break out that specifically, but I would say a meaningful percentage of our business is done through some sort of partner. Those partners can come in a variety of flavors. We already talked about the cloud providers. To your point, the systems integrators are another key cohort of partners that we work with. We also work with a bunch of ISVs and they could be either sell-to or sell-through kind of relations with the ISVs. And so our partnerships play a big role. We have a dedicated partner organization focused on our partners, and they play a critical role in kind of helping us expand our reach and accelerate deals, as well as shorten the cycle time to close deals. And with regards to the SIs, historically, we’ve done business with every major SI in the industry and so I can’t think of one larger SI where we haven’t done some business with. We’re obviously picking and choosing the partners we work with where we think we can have the biggest impact. But we’re also working with some boutique partners who have real MongoDB expertise who bring some expertise, especially since many customers may not necessarily have all the MongoDB skills that they want in their own organization and they also provide a valuable role in helping us grow our business.

Jack Andrews, Analyst

Thanks and congratulations on the results.

Dev Ittycheria, CEO

Thank you.

Operator, Operator

The next question will come from Ittai Kidron with Oppenheimer. Please go ahead.

Ittai Kidron, Analyst

Thanks. Nice numbers, guys. Just one from me, Dev, maybe you could talk about international; you haven’t talked about your international mix and that performed in the quarter. Maybe you can kind of recap for us how patterns internationally are similar or different than they are here in the U.S.? And also is your strategic discussions that you’re having with customers now here in the U.S., is that also something that applies internationally or that’s more of later cycles, say, relative to where you are here in the U.S.

Dev Ittycheria, CEO

So, I would say our business is frankly strong across the globe. Obviously, different theaters have the size of businesses that are different, but we’re seeing significant demand across the globe. I’ll start with Europe. Historically, we’ve been very strong in Northern Europe, particularly the U.K., but we’ve really expanded very aggressively to Southern Europe; France, Italy, Spain have become really, really strong markets for us. We’ve also expanded quite aggressively, as you imagined, to Germany and Northern Europe, and we’re feeling really good about the opportunity there. In fact, we’re trying to hire as fast as we can. In terms of Asia, we’ve seen a burgeoning demand coming out of India and Southeast Asia. It was funny, our sales leadership, when we first launched Atlas, argued that Atlas’ value proposition would make a lot of sense as the cost of labor was a lot lower in India. The Atlas value proposition wouldn’t even make as much sense because people just hire their own database administrators. It turns out, people value speed, people value being able to innovate, and people value offloading undifferentiated work. So Atlas is going on like gangbusters. Our India team has been crushing their numbers. So we’re trying to expand that team as fast as possible, same in other parts of Southeast Asia. In China, obviously, we can’t offer Atlas due to regulatory constraints. So we decided, as you may be aware, that we have a relationship with both Alibaba and Tencent. With Alibaba, we are about in year two of that relationship and that relationship is going really, really well. And Tencent is just starting to heat up. As you know, there’s some scrutiny from the government there. But we’re not seeing that in our business with those partners. And then in terms of Latin America, while we don’t have a huge presence there, we’re seeing a lot of demand. So we’re trying to service that through our inside sales team and our self-serve channel, and we’re starting to deploy more resources in Latin America. So I would tell you that this market is very large and it’s truly a global phenomenon.

Ittai Kidron, Analyst

Very good. Good luck. Thanks.

Dev Ittycheria, CEO

Thanks, Ittai.

Operator, Operator

The next question will come from Matthew Broome with Mizuho Securities. Please go ahead.

Matthew Broome, Analyst

Thanks very much and definitely appreciate the geographic color there on. I guess, sort of a similar question in terms of, sort of, customer that goes, if there are any specific industries that sort of particularly outperformed your expectations or conversely where you’d like to see a bit stronger momentum?

Dev Ittycheria, CEO

Well, I would say, obviously, it’s a big market. So as you can imagine, our sales teams tend to go where the business is. We tend to not organize by verticals. But that’s something that may change over time as we see getting going deeper and accounts going deeper into financial services, going deeper into understanding their particular use cases can have disproportionate impact on our business. So that’s something that we’re contemplating. But I would say, in general, we’re seeing strong performance across the board. MongoDB is truly a horizontal solution, and it’s really a function of our coverage model and how many people we have in the region. And because they’re organized geographically, they’ll go after the opposite way, they think that they can have the quickest impact on. So, as you can imagine, companies that are more technology sophisticated tend to be really good customers of ours because of companies who want to build their own custom applications tend to be really the customers of ours. Obviously, every new SaaS company who’s coming out, as we think about the tech stack, we want to be part of that tech stack. So we’re spending a lot more focus on those companies, because as they grow, we’re the beneficiaries of that growth.

Michael Gordon, COO & CFO

I would just add that if you consider the strong performance in Q2, we noted robust results across the board. Enterprise Advanced was especially strong. While it may sometimes be associated with specific industries, the actual outcomes depend on how a company’s architecture is structured and how they choose to use software. So it doesn't always align perfectly with industries. As I mentioned, we saw very strong Q2 performance across our products, particularly in EA. Looking ahead to the second half of the year, we are not relying on EA performance for our expectations, which will, of course, affect our numbers.

Matthew Broome, Analyst

Excellent. Thanks again.

Operator, Operator

The next question will come from Steve Koenig with SMBC Nikko. Please go ahead.

Steve Koenig, Analyst

Okay, Hey. Thanks for squeezing me in guys. I’ll just ask one question. So I remember back in the day at Oracle when interoperability and portability were big marketing points for them. Now their applications have all been built and the marketing message isn’t so important for them. But new applications are being developed in the cloud with new databases like Mongo, yet database interoperability is great, multi-cloud is great, but there are a lot of other past services that apps need to hook into besides the database. So can you give us more color on how real multi-cloud is today and the customer challenges associated with implementing it? And I think the broader question is, long-term how do you stay ahead of the major cloud vendors who expand a very good chance of being major forces in this market? Thank you very much and I appreciate the squeezing me in.

Dev Ittycheria, CEO

When you speak to any developer, they often mention that the majority of their time and effort is spent dealing with data. The database is where they encounter the most significant challenges, and it also presents the biggest opportunity for us. Despite needing to integrate with other solutions and create various microservices, each microservice requires a database. As applications become more modular, the importance of the database remains crucial. When a customer develops an application, they may utilize other services from their cloud provider, but the choice of database significantly impacts their ability to innovate quickly and add features, which is a key reason for our success. We have been competing against major companies like Oracle and cloud providers such as Amazon and Azure for a long time, and we’ve maintained our position. This is largely due to our strong intellectual property related to the document model, which has proven to be the most effective way to manage data. Although we offer an open-source product, we have a solid intellectual property barrier that prevents cloud providers from simply adopting our free version to compete with us, unlike many other open-source technologies. Following our public offering, there was some skepticism from certain investors about our ability to compete by creating our own cloud service against established vendors. However, our performance demonstrates our capability. Few enterprises are growing at over 80% with a half-billion dollar run rate, which reflects our intellectual property strength, the value we provide to customers, and our execution ability.

Steve Koenig, Analyst

Great. Thanks very much again. Thank you.

Operator, Operator

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, sir.

Dev Ittycheria, CEO

Thank you. I just want to leave you with a few comments. First, I think what we really want to reinforce is that we believe customers realize that if they want to move fast, MongoDB is the best way to do so. Second, Atlas’ growth of 83% reinforced the point that customers want a multi-cloud platform that enables them to innovate quickly and outsource the undifferentiated heavy lifting of managing their data infrastructure. Third, we continued investing and evolving our go-to-market strategy across field sales, inside sales, and self-serve channels to capture this large market opportunity. And last but not least, we continue to rollout significant innovation to improve our platform through both ease-of-use and expansion of capabilities to encourage more and more customers to use MongoDB. So thank you for your time, and we’ll talk to you next quarter. Take care.

Operator, Operator

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