Earnings Call Transcript - MDB Q1 2021

Operator, Operator

Good day, and welcome to the MongoDB First Quarter Fiscal 2021 Earnings Conference Call. All participants are 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 Mr. Brian Denyeau. Please go ahead.

Operator, Operator

Great. Thank you, Sean. Good afternoon, and thank you for joining us today to review MongoDB's First Quarter Fiscal Year 2021 Financial Results, which we announced in our press release issued after the close of the market today. Joining me on the call today are Dev Ittycheria, President and CEO of MongoDB; and Michael Gordon, MongoDB's COO and CFO. During this call, we may make statements related to our business that are forward-looking under Federal Securities Laws. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our financial guidance for the second fiscal quarter and full year fiscal 2021, the anticipated impact of the COVID-19 pandemic and market trends in our future results of operation and market position, the impact of ASC 606 revenue timing and Atlas sales on our future results of operations, our market opportunity and prospects to increase our market share of the global database software market, the opportunity build the continuing shift to the cloud, the ability of our data platform strategy and our investments in R&D, marketing and hiring and driving to sustaining long-term growth. The words anticipate, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and should not be construed as representing our views as of any subsequent date. We do not have plans to update these statements, except as required by law. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our annual report on Form 10-K filed with the SEC on March 27, 2020, our current report on Form 8-K filed with the SEC today and in subsequent reports that we filed with the SEC from time to time, including our quarterly report on Form 10-Q that we intend to file in the near-term. These documents are available in the Investor Relations section of our website at www.mongodb.com. A replay of this call will also be available there for a limited time. Additionally, non-GAAP financial measures will be discussed 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.

Dev Ittycheria, CEO

Thanks, Brian, and thanks to everyone for joining us today. We have a lot to cover. But before I do, I would like to speak to what's happening across the United States and in many parts of the world. I want to state unequivocally that MongoDB stands with the black community against racism, violence and hate. We are distraught by the spate of recent deaths of, and other horrific incidents towards members of the black community, all because of bigotry that is far too prevalent in our society. MongoDB is deeply committed to creating a culture of inclusion. This is one of our core values, where everyone, no matter what they look like, where they're from, whom they love or what God they pray to, is treated equally. Moving forward, I will start by reviewing our first quarter results before providing some color on how our employees and customers are responding to the COVID-19 pandemic and how the current environment is impacting our long-term view of the business. Looking quickly at our first quarter financial results, we generated revenue of $130.3 million, a 46% year-over-year increase and above the high end of our guidance. We grew subscription revenue 49% year-over-year. Atlas revenue grew over 75% year-over-year and now represents 42% of our revenue. And we had another strong quarter of customer growth, ending the quarter with over 18,400 customers. Delivering such strong Q1 results in the midst of the COVID-19 crisis and the associated economic disruption is a testament to the resiliency of our employees, the quality of our execution, the appeal of our technology and our positioning in the marketplace. While the high degree of uncertainty in the market will continue to have some impact on our near-term results, our results in Q1 reinforced our conviction in the long-term potential of our business. Our first operating principle is the safety and well-being of our employees and our customers. We responded early and decisively to adapt to the spread of COVID-19. I couldn't be prouder of how our employees adapted and how quickly each of our teams retooled their operating plans to address the constraints we are operating under. Our developer relations team is making Johns Hopkins University's COVID-19 dashboard more accessible, by hosting it on MongoDB Atlas. Our marketing, developer relations and finance teams collaborated to launch a free Atlas credit program for all developers looking to build applications to track and stop the spread of the virus. So far, we have helped launch 180 new initiatives. Finally, covidnearyou.org, supported by MongoDB employees and built on Atlas, has made it easier for people to track the virus in their local communities, with users having reported over 1 million personal health updates. From a business perspective, we quickly made a number of changes that allowed us to operate with minimal disruption. Our sales team was inspired by the performance of teams, in the earliest impacted areas, such as China and Italy, where we actually saw an increase in customer engagement. The team adhered to its rigorous pipeline generation and deal qualification processes, resulting in strong close rates despite the challenging backdrop. Our self-serve team closely monitored the online advertising market and used the decline in advertising prices to invest more in this channel while maintaining high rates of return. Our marketing team pivoted completely from physical to online events, resulting in 12,000 webinar attendees in Q1 compared to 2,500 a year ago. In addition, we turned MongoDB World, our flagship user conference, into an online event called MongoDB.live, which will take place next week. We have been thrilled with the response and already have over 40,000 people registered for the event. In comparison, last year, we had 2,000 people attend our in-person events. Speaking of MongoDB.live next week, we're excited to announce a slate of new products and enhancements to existing products that our engineering teams have been working on despite the significant disruption caused by the work-from-home transition. Finally, the rest of our teams rose to the challenge and performed admirably against a difficult backdrop. For example, we seamlessly transitioned recruiting and onboarding to a fully virtual environment, enabling us to hit our Q1 hiring plan. We also transitioned our highly regarded summer internship program to a remote experience. And we look forward to welcoming our 83 interns, chosen from the over 20,000 applications we received. While we can't predict with certainty how long or how severe the COVID-19 global disruption will be, we are seeing clear signs that the current environment is only accelerating the secular trends of which we are a long-term beneficiary. Our customers are more determined than ever to proceed with their digital transformation efforts. Businesses of all kinds, even the most technology-cautious, recognize their future is powered by software. Consequently, they need to continue to invest in their digital future despite the near-term economic uncertainty. During Q1, we saw customers in even some of the most negatively impacted industries double down on their digital transformation journeys. For example, we closed a 7-figure deal with one of the largest global auto companies. The company is making MongoDB as a service available to internal users on their private cloud. There are currently more than 1,000 MongoDB servers in production, supporting critical use cases within the various areas of the company's digitization strategy, including their connected car initiative. Next, the volatility of the current environment is further underscoring the need to use platforms that enable speed and agility. Our customers want to move fast to quickly seize new opportunities or respond to new threats. They want to easily bring new features to market and leverage data effectively while being able to operate at almost unlimited scale. This increased need for speed and agility plays squarely into MongoDB's core strengths. For example, one of the world's most popular consumer video chat applications was built on MongoDB technology and was able to withstand a 120x increase in concurrent users on the weekend of March 14th. In addition, we strongly believe that the current environment will only hasten the cloud transition. COVID-19 has made it abundantly clear that doing the undifferentiated work of database management is not only inefficient but can, in fact, make it harder to address users' ever-increasing expectations. Customers want to derisk their operations and devote all their energy to doing work that has a high impact on the business, as opposed to managing and maintaining their own infrastructure. In Q1, we expanded our Atlas relationship with a leading North American airline. Their strategic focus is to accelerate their move to the cloud in order to modernize their applications and reduce their dependence on the mainframe. MongoDB is helping them build an operational data layer in the cloud. Finally, our customers are learning the value of a global cloud data platform that makes multicloud easy to implement. Since the pandemic started, all cloud providers have seen spikes in usage that have impacted their performance and availability in certain regions. In addition, cloud providers have limited certain features to avoid bottlenecks. Given the increasing likelihood of infrastructure constraints, having a data platform such as MongoDB that makes it easy to use multiple cloud providers is becoming even more important. A Canadian security company recently migrated its mobile security platform from DocumentDB to MongoDB Atlas. In addition to reducing costs by 60% and being able to leverage all the features of MongoDB, the key objective was to create a global multicloud foundation to rapidly scale IoT, AI and transactional workloads. I'd like to spend a few minutes reviewing some of the other customer wins and interesting use cases from the first quarter. Grocery delivery wholesaler Boxed has seen soaring demand for goods and services due to the pandemic. With the availability of essential supplies changing on a daily basis, they needed a highly scalable database platform to manage their supply chain in real time. They doubled down on MongoDB Atlas and started using MongoDB Charts to help with capacity planning and to ensure they could scale to meet the extreme increases in customer demand. Bingel, the leader in interactive and personalized online learning for Belgian primary school children, turned to MongoDB on March 13 to handle the increase in demand when the government shut down all schools because of COVID-19. The company, part of Sanoma Learning, immediately became part of the country's critical infrastructure and realized it needed Atlas in order to scale to meet the needs of the country's children. Bingel rapidly migrated services and now seamlessly handles more than 12 million online exercises a day. Forbes recently added digital asset management to its list of technologies running on Atlas. The publisher has been working with us to transition more of its digital footprint to MongoDB. Known for being an innovative brand, Forbes has many new products in development designed to help showcase its journalism fueled by digital. As it continues to lead the media industry, set new traffic records and attract new audiences, Forbes credits MongoDB for improving its ability to serve dynamic content, decreasing its total cost of ownership and making it possible to replace some of its legacy technologies. Zomato, one of the largest restaurant discovery and food delivery services in the world with over 80 million monthly active users in 24 countries, recently increased its commitment to MongoDB to power its logistics application, an essential piece of the last mile in the food delivery chain. This helps Zomato ensure that they are able to keep up with increased demand, efficiently map their food delivery orders to the right delivery partner, track their journey and ensure on-time deliveries. French multinational Schneider Electric, which provides energy and automation digital solutions for efficiency and sustainability, recently expanded its commitment to MongoDB. The company chose MongoDB to help rapidly scale new security requirements for its new IoT-enabled platform EcoStructure, which makes businesses safer, more reliable and more connected. The company leverages Atlas to reduce TCO and help its team scale and manage large volumes of data more effectively. NETS Group, the leading payment service provider in Scandinavia and across Europe, chose MongoDB as its anchor data platform to modernize its payment services and establish a distributed microservices architecture. With MongoDB, the NETS Group makes it even easier and more intuitive for its customers to handle digital payments and related solutions. Woolworths Group, one of the largest retailers in Australia and New Zealand, decided to start offering digital receipts to its 11.7 million reward customers in order to minimize human contact during COVID-19. The retailer used Atlas to create a new platform to ingest all of its point-of-sale data, more than 350 transactions per second and serve it out to customers in real time. MongoDB was able to help them get the system up and running in under three weeks. In summary, we are very pleased with our performance in Q1. In many ways, the world's technology has seen more than three years' worth of change in the past three months. While we expect the uncertainty and the volatility to continue, we remain very focused on building for the long-term and the large opportunity we see ahead. With that, let me now turn the call over to Michael to review our financial results.

Michael Gordon, COO and CFO

Thanks, Dev. As mentioned, we delivered another strong performance in the first quarter, both financially and operationally. I'll begin with a detailed review of our first quarter results and then finish with our outlook for the second quarter and full fiscal year 2021. First, I'll start with our first quarter results. Total revenue in the quarter was $130.3 million, up 46% year-over-year. Subscription revenue was $124.9 million, up 49% year-over-year. Professional services revenue was $5.5 million, up 1% year-over-year. To help you better understand our performance in the quarter and the impact from COVID-19 on our outlook, we wanted to share some trends we are seeing across our customer base to provide additional context. First, let's talk about new business. Q1 was a strong quarter for new business, and COVID-19 had less of an impact on new business in Q1 than we expected. On the direct sales side, as Dev mentioned, our sales teams around the world worked effectively and responded to the new circumstances and executed well. In particular, we had a stronger-than-expected quarter in terms of new business coming from Enterprise Advanced, which helped drive revenue outperformance due to the upfront licensing revenue recognition component under ASC 606. On the self-serve side, we saw a meaningful increase in registrations in Q1, which translated into better-than-expected new customer acquisition, which you can see in our customer counts. While we saw a muted impact from the pandemic on new business activity after the global lockdown began in mid-March, we did observe a modest slowdown in the growth from our existing Atlas customers, particularly in self-serve. The impact was modest, but broad-based, mirroring the broader economic contraction. As a reminder, we recognize Atlas revenues based on consumption, so the slowdown did impact our Q1 Atlas revenue performance. To be clear, we haven't seen any increase in customer churn in either of our direct sales or self-service channels. Overall, Atlas' strong performance continues to be the largest contributor to our growth. Atlas grew over 75% in the quarter and now represents 42% of total revenue compared to 35% in the first quarter of fiscal 2020 and 41% last quarter. In addition to the dynamics in existing self-service customers that I referenced, mLab, as expected, represented the growth headwind as we're in the final stages of transitioning those customers before we deprecate the mLab platform. During the first quarter, we grew our customer base by over 1,400 customers sequentially, bringing our total customer count to over 18,400, which is up from over 14,200 in the year-ago period. Of our total customer count, over 2,200 are direct sales customers, which compares to over 1,800 in the year-ago period. The growth in our total customer count is being driven in large part by Atlas, which had over 16,800 customers at the end of the quarter compared to over 12,300 in the year-ago period. Sequential growth in total customers includes growth in our EA customers as well as new Atlas customers. It is important to keep in mind that the growth in our Atlas customer count reflects new customers to MongoDB in addition to existing EA customers adding incremental Atlas workloads. Customer retention remains high and we've seen continued strong net expansion rates across our installed base. We had another quarter of net ARR expansion rate above 120% despite the impact of the economic environment. We ended the quarter with 780 customers with at least $100,000 in ARR and annualized MRR, which is up from 598 in the year-ago period. Moving down the P&L, I'll be discussing our results on a non-GAAP basis unless otherwise noted. Gross profit in the first quarter was $95.6 million, representing a gross margin of 73% compared to 74% last quarter and 70% in the year-ago period. Overall, we're pleased with our gross margin performance, which reflects greater efficiency and scale in our Atlas business. However, we continue to expect that we will see some modest reduction in overall company gross margin as Atlas continues to be a bigger portion of our revenue. Our operating loss was $7.4 million or negative 6% operating margin for the first quarter compared to a negative 14% margin in the year-ago period. Net loss in the first quarter was $7.3 million or $0.13 a share based on 57.6 million weighted average shares outstanding. This compares to a loss of $0.22 per share on 54.7 million shares outstanding in the year-ago period. Turning to the balance sheet and cash flow. We ended the quarter with $977.5 million in cash, cash equivalents, short-term investments and restricted cash. Operating cash flow in the first quarter was negative $5.9 million. After taking into consideration approximately $2.6 million in capital expenditures and principal repayments of finance lease obligations, free cash flow was negative $8.5 million in the quarter. This compares to positive free cash flow of $2.8 million in the first quarter of fiscal 2020. I'd now like to turn to our outlook for the second quarter and full fiscal year 2021. For the second quarter, we expect revenue to be in the range of $125 million to $127 million. We expect non-GAAP loss from operations to be $24 million to $22 million and non-GAAP net loss per share to be in the range of $0.41 to $0.38 based on 58 million weighted average shares outstanding. For the full fiscal year 2021, despite the fact that the macroeconomic outlook is materially worse than what we'd factored into our March guidance, we are pleased to raise the midpoint of our revenue guidance and tightened our range to $520 million to $530 million. We're also tightening our profitability ranges and now expect non-GAAP loss from operations to be $78 million to $70 million and non-GAAP net loss per share in the range of $1.34 to $1.21 based on 58.1 million weighted average shares outstanding. Let me provide some incremental color on how we see the ongoing COVID-19 pandemic impacting our revenues for the rest of the year. When we introduced our fiscal 2021 guidance in March, we shared our underlying assumptions that we would see a material business impact on the first half, followed by a more normalized environment in the second half of the year. Given the global development since March, we clearly now expect the impact of the pandemic to extend longer and impact the second half of the year more materially, resulting in a greater revenue impact for the remainder of the year than we had outlined in March. Let me share some more color on how we expect this impact to manifest itself. In March, we stated that we expected a greater impact on new business activity in Q2 as compared to Q1, as Q1 benefited from a deal pipeline already in place when the pandemic started. We still expect that to be the case and we now expect the Q3 environment to be similar to that of Q2, followed by a more modest improvement in Q4. Furthermore, our forecast assumes that we continue experiencing this slower than historical growth from existing Atlas customers for the duration of the crisis, before returning to historical levels thereafter. Turning specifically to Q2. We expect the stronger-than-expected Enterprise Advanced performance in Q1 to represent a tough sequential compare given the term license revenue recorded under ASC 606. Also keep in mind that we will feel the impact of a full quarter's worth of slow growth from existing Atlas customers, which impacted only a portion of the first quarter. Let me also provide you with an update on our investment outlook. As Dev explained, we see clear signals that the current environment is only accelerating the secular trends that we are beneficiaries of. That long-term potential as well as our strong execution in this challenging environment gives us continued confidence to be opportunistic on the investment front. Due to the constraints caused by the prolonged COVID-19 disruption, we are naturally generating savings as travel, event and facility expenses are lower. We've decided to reinvest those savings in two high-return areas, in particular, where we're seeing unique opportunities. First, as Dev mentioned, online advertising rates have declined significantly, in some cases, as much as 30% since the pandemic started. This provides us an excellent opportunity to increase our investment in digital marketing to expand on recent strength in self-serve customer new additions. Given that our new self-serve customers are relatively small, the revenue impact from this year will be modest, but the increased investment will position us well for fiscal 2022 and beyond. Second, in the current environment, we're finding there's an opportunity to incrementally add strong engineering talent that is not normally on the market and is now looking to join a well-positioned and well-funded company like ours. As a result, we've decided to pull forward a portion of our expected fiscal year 2022 R&D hiring to take advantage of talent availability and further accelerate our ambitious product roadmap. To summarize, MongoDB delivered excellent first quarter results. Our ability to focus and execute has served us well in a difficult environment. And our Q1 performance gives us increased conviction that we'll be in an even stronger position when economic conditions improve. We are also confident the investments we are making today are positioning us well for continued success as we pursue our long-term market opportunity. And with that, we'd like to open it up with questions.

Operator, Operator

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

Sanjit Singh, Analyst

Hi. Thank you for the question and congratulations on a strong Q1 in a challenging selling environment. Dev, you mentioned how COVID has accelerated digital transformation and cloud adoption. Looking at the Q1 results, it seems the strength in the quarter was more evident in Enterprise Advanced compared to Atlas. Can you help clarify the connection between these two areas? Customers are seeking greater flexibility and agility, so why was there more demand for Enterprise Advanced? Is it the easiest way for existing customers to implement new applications right now, and do you expect that to change in the future? It would be great to hear your thoughts on current demand and how you anticipate trends will evolve for Atlas moving forward.

Dev Ittycheria, CEO

Yes. Thanks, Sanjit. I just want to remind people that we don't push people towards any particular consumption model, because one of our strong value propositions is that you can run MongoDB anywhere. And so we still have lots of customers, even though Atlas has grown so quickly, have lots of customers who purchased Enterprise Advanced. And the same phenomenon happened in Q1 where we had, again, quite a robust demand for EA. I would say Atlas was also very strong. I mean Atlas grew 75% year-over-year. And so, I wouldn't suggest that it is solely because of Enterprise Advanced. And I know in previous calls, people were a little worried about the growth of EA. And so, I think this puts to rest that there's still robust demand for our products and some customers want to run on-premise. They made significant commitments to their existing internal infrastructure. And obviously, a lot of customers are embracing the cloud. And we do believe that the long-term trends are towards the cloud and one of the benefits of using MongoDB now even on-premises is that it gives customers easy on-ramp to cloud because they don't have to rewrite the application once they actually decide to move to the cloud. So that's one of the added benefits of going with MongoDB.

Sanjit Singh, Analyst

Got it, makes total sense. And then Michael, just as a follow-up, as we think about the full year guidance, and you sort of mentioned Q1 benefited from a healthy pipeline coming into the quarter, as you think about the range and guidance, what sort of close rates are you assuming? Like, did you take down your close rates or any sort of color you can provide on contextualizing the range of guidance in terms of the pipeline that you have going forward and potential closure rates on that pipeline, that would be helpful? Thank you.

Michael Gordon, COO and CFO

Yes. Sure. I'll say a few things, and I'll disaggregate it into the two main channels sales sold versus self-serve. I think in sales sold, we walk people through the impacts back in the March quarter when a lot of this was emerging and we attempted to quantify the potential impact. We walked people through the scenario where we were looking at Q1 impacts and Q2 impacts in terms of new business with the recovery and normalization in the back half of the year and that's sort of flowing through the revenue model, if you will. I think what we saw is obviously a very strong Q1 and the team really did a great job in terms of powering through. We're still expecting to see an impact in Q2 and that's reflected in the guidance. And we're also expecting that that to continue further into the year, right? So we're expecting Q3 to be roughly in line with Q2 and Q4 to be more impacted. And so that's sort of on the new business activity and the signing of new business activity, and that flows its way through the revenue, as you might imagine. One of the things to call out, which I think Dev mentioned on the last call as well, is I think while this has been going on for a while, it's still relatively new. And I think if you think about deal cycles and close rates and some of the things that you're describing, I think we obviously did a very good job in terms of execution and close rates and pursuing against the pipeline of opportunities that we had. But we have to remember the deals that we closed in Q1 were mostly in process. And so there's a question that we're – that's sort of factored in, which is we assume productivity takes a hit in Q2 and Q3 in part because now you're having to generate the new business all in this remote environment the team has done a great job of adapting, but we don't have a lot of data points around that. On the self-service side and – which is all Atlas and including the revenue components of sales sold Atlas, we did mention the slower expansion that we saw from our existing customer base, great strength in adding new customers and no uptick in churn in terms of customers going to 0. And so – but we did see slower growth, that's very much COVID-related. I think if you think about having a consumption model that's one of the things that sort of flows through, right. And you've got a usage based model, there's a portion of the customer base whose business – their own business is materially impacted. And so as a result, we see less expansion from that existing customer base and we're sort of assuming that will continue as well. So when you take those couple of factors and in terms of the annual guide and then you also layer in the mLab declines that we've talked about, I think that's what sort of all adds up to our full-year view.

Sanjit Singh, Analyst

Perfect. Thank you, Michael, for the color. Appreciate it.

Operator, Operator

And now our next question will come from Brad Reback with Stifel. Please go ahead.

Brad Reback, Analyst

Great, thanks very much. On the Atlas side, could you provide maybe any color, I know you said it was fairly broad-based, but were there any specific pockets of weakness either from a customer side and/or vertical?

Michael Gordon, COO and CFO

No, in general, as we mentioned, this relates more to the self-service segment initially, which naturally has a smaller customer base. We did observe some impact on the sales sold side, but nothing significant. There has been no churn or increase in churn. You might expect that a few customers could have an outsized influence, but it's more the opposite due to the overall economic downturn, causing many businesses to see a decline in demand for their products. An elastic business model means that when demand decreases, there will be reduced usage of Atlas. Therefore, I don’t think there are any noteworthy insights or major customer outliers affecting the slower growth.

Brad Reback, Analyst

Got it. And just one quick follow-up. If you think about usage trends thus far in 2Q, have you seen any modest uptick, or are they where they were for the month of April?

Dev Ittycheria, CEO

Yes. So we, in general saw some initial behavior, probably mid-to-late March and saw that come down. We are assuming right now from a forecast perspective that based on everything we've been able to discern, that's related to COVID-19, and so we baked into our outlook that we'll see those continue.

Brad Reback, Analyst

Okay. Thank you very much.

Operator, Operator

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

Dan Church, Analyst

Hi, this is Dan Church on behalf of Heather Bellini. Thank you for taking my question. You touched on this slightly in your remarks, but I would like to follow up on the previous question. As Atlas continues to grow, what kind of visibility do you have for the second half of the year regarding revenue, considering it is consumption-based? Also, could you provide any insights on how this impacts billings as Atlas becomes a larger part of the mix? Thank you.

Michael Gordon, COO and CFO

We've observed strong demand for Atlas. The 75% growth at this scale is quite rare. If we exclude the impact from mLab, organic Atlas has more than doubled, showing impressive overall performance. It's helpful to break down the sales into two categories: the sales sold side and the self-serve side. On the sales sold side, customers usually make annual commitments, providing a good level of usage visibility through contracts. Though we don’t provide guidance on billings, it’s important to note that we’ve been encouraging more seamless engagement with Atlas. Many customers on the sales sold side utilize monthly invoicing, which doesn't significantly contribute to deferred revenue calculations. On the self-service side, it's more about a portfolio of smaller customers, where individual outliers exist but don’t substantially impact overall results. The slower growth we’ve seen from existing customers stems from broader macroeconomic factors. This level of macroeconomic change is nearly unprecedented, and database usage closely relates to how intensively businesses operate. We're factoring this into our future forecasts.

Dan Church, Analyst

Helpful. Thanks. And then just as a quick follow-up. Are you seeing any changes in the overall pricing environment, or have you received any requests for discounts from customers or extended billing terms, flexible payments, anything like that would be helpful.

Michael Gordon, COO and CFO

Customers generally appreciate discounts, but we haven't noticed a significant increase in that area. There have been a few interesting anecdotes regarding payment terms, but nothing substantial or indicative of a widespread trend. We conducted an internal analysis of payment terms and found no meaningful changes, just some isolated cases that might seem noteworthy but don't reflect a clear trend.

Dan Church, Analyst

Okay. Thank you.

Operator, Operator

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

Tyler Radke, Analyst

Hey. Thanks a lot. Hope you are doing well. I wanted to ask you about the strong customer adds that you saw this quarter, both in Atlas and overall. Is there anything to call out there? Was that led by kind of the customer side, more of a pull or push? And how are you thinking about the growth in customer adds in Atlas going forward?

Dev Ittycheria, CEO

Thanks, Tyler. I believe this reflects our heightened focus on pipeline generation and enhancing the self-service aspect, as we learn and identify effective programs while growing our business. The effectiveness of our digital marketing efforts has been steadily improving. Additionally, our strong value proposition plays a significant role. We have high customer engagement, even with clients in challenging industries. The acceleration of digital trends is evident, as businesses seek to adopt more modern cloud-native solutions to gain a competitive edge. Moreover, our platform simplifies multi-cloud integrations, instilling confidence in customers that investing in MongoDB provides them with valuable options. All these factors contribute to our confidence in the long-term health of our business.

Michael Gordon, COO and CFO

Yeah. I would just also add, and we said this in the prepared remarks, but just so people are clear, both the self-service side customers start small, and one of the things that we've been able to do in the direct sales side, as I mentioned, is sort of reduced friction. What that means is, people tend to come on at smaller revenue levels, but then we see great growth and expansion within Atlas. And so, not as much, I wouldn't get carried away with the sort of near-term takeaway in terms of the revenue impact, but in terms of how it sets us up in fiscal 2022 and beyond, we feel very good about it.

Tyler Radke, Analyst

Thanks. Just a follow-up, Michael, regarding your comments about some customers in Atlas experiencing slower expansions. Are you noticing any dollar-based churn? Are workloads shifting away that are less mission-critical, or is it that they were previously expanding at 20% to 30% and are now flat? How should we approach modeling this? Should we expect more modest growth moving forward, considering we’ll see a full quarter of this impact ahead? How should we consider its effect on the overall growth rate of Atlas?

Michael Gordon, COO and CFO

Yeah. So, I think about it really in three main buckets, and it's probably clear, but just because it's important enough, and we are trying to shed the insight and the color, I want to make sure it's sort of clear and well understood by folks. So I think one of three main buckets, there is new customers coming in, which continues to be strong, and we saw an acceleration in that. There is turning customers, meaning customers leaving, and we saw no increase in that. And the rest is just the expansion rate from existing customers, and what we saw there is slower growth from those existing customers. So just to be clear, still growth, right? And so, what we saw there was is within some of that, you see people adjusting their consumption levels based on the underlying trends in their business, and so that's really what's happening.

Tyler Radke, Analyst

Thanks.

Operator, Operator

The next question will come from David Hynes with Canaccord. Please go ahead.

David Hynes, Analyst

Hey, thanks very much. Dev, you touched on the importance of multi-cloud optionality a couple of times here in the call. But I want to ask you, what you're seeing from the public cloud database efforts. Any change in competitive tactics or what you're seeing in the field from Dynamo or Cosmos?

Dev Ittycheria, CEO

We’re not seeing any significant changes. We've previously discussed our partnerships with major cloud providers, and while Amazon and Microsoft Azure have their alternatives to MongoDB, the competitive landscape hasn't shifted much. We're confident in our positioning when competing. Their products are similar to MongoDB, and when we showcase the full feature set and capabilities available in MongoDB and through Atlas, it becomes an easier choice for customers. What concerns us are the deals we are not involved in, as their reach and brand allow them to capture business that isn't always accessible to us. However, as we mentioned before, Google doesn't have a competitive product, and our partnership there is robust. They recognized us as one of their technology partners of the year, and our sales teams engage heavily in joint planning across various regions, including Europe and North America, contributing to rapid growth. Overall, our business across all cloud providers is thriving, and we are very optimistic about our value proposition.

David Hynes, Analyst

Perfect. And Michael, one quick follow-up for you. I'm not sure if you called it out. I may have missed it, but how much was the EA term license in Q1? It would just be helpful as we think about the sequential comparisons looking to the July quarter.

Michael Gordon, COO and CFO

Yes. So we didn't call it and quantify the number, but it was a significant increase and contributor to the strong outperformance in Q1. And this is where we've tried to call out pretty consistently from folks when that happens, just given that it introduces this increased variability and the reduced comparability from period-to-period, both sequentially as well as year-over-year. And as Dev mentioned, it's not something that we're particularly trying to drive, but it's just sort of the way the deals in any given quarter fall out from a pipeline perspective.

David Hynes, Analyst

Sure. Okay. Thanks guys, congrats.

Operator, Operator

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

Raimo Lenschow, Analyst

Dev, if you reflect on March, you had specific planning assumptions for the year that influenced your guidance. Now, it seems that things may take a bit longer. Can you elaborate on the process you followed back then regarding different regions, particularly in terms of cost rates, and then share what has changed since March? What factors now make you feel a bit more uncertain? Please discuss the differences from that time.

Michael Gordon, COO and CFO

In terms of our guidance now versus in March?

Raimo Lenschow, Analyst

Yes. Yes, yes.

Michael Gordon, COO and CFO

I believe the easiest way to understand this is that when we provided our guidance in March, many may not have anticipated that a significant portion of the workforce would still be working remotely for the rest of the year, considering the broader macroeconomic conditions. We had a strong Q1 and continued to push through that, but we applied a similar approach to our new business analysis, examining it region by region. A simplified way to look at it is to think about assigning different risk levels to regions. Previously, one region might have been seen as high risk with a larger impact, while another might have had a smaller effect. However, now it seems that every region we consider falls into the high-risk, high-impact category, which increases pressure across the board. This situation is widespread and has been extended in duration, leading to a more significant impact over time. Additionally, at the time of our March guidance, we had not yet observed the slowing growth among our existing Atlas customers, which has since occurred. Therefore, we have updated our forecast model and guidance to reflect these changes, aiming to provide you with the clearest picture of our business. Despite the situation and the earlier quantified impact of 15 to 25, we now recognize that the overall impact for the year is larger. However, due to our strong execution, we are able to increase the midpoint of our guidance, reflecting our confidence in our current position and performance.

Raimo Lenschow, Analyst

Yes. Okay. Perfect.

Michael Gordon, COO and CFO

In challenging environment.

Raimo Lenschow, Analyst

Got it. Yes, yes. Okay. That's really helpful. That's really helpful to getting extra detail, Mike. And then the other question is on Atlas self-service. Obviously, like there are different things that people will wonder now. It's like if you think about it, is this still a law of large numbers coming in and that drives the deceleration? Because like in theory, like, you could see, like, okay, maybe the higher churn, but you said there's not higher churn, like, how do I have to think about that self-serve number going forward and underlying? I mean, clearly, just the strength in the direct business, which should be your future, but on self-serve, kind of we're all struggling a little bit, like, how to think about that?

Michael Gordon, COO and CFO

Yes. I think what I'd say is because it was so broad-based, and again, we sort of dissected it in the way that I described, you can see that the new customer additions are strong, and we looked and we saw – we did not see an increase in customers churning. And so really, it's just about what is the expansion behavior, what is the growth rate of that existing base. And it was so broad-based. And so modest on sort of a per customer impact, if you will, but broad-based and so coincident with the global shutdown, lockdown that sort of started happening in mid- to late March, that the correlation is quite high. And when you think about just if you're running a business, if you've got an application and there is dramatically less usage, your business is taking a hit as so many businesses are, the underlying impact of that is significant to your business and some of that in a consumption usage-based model starts to flow through. I think, importantly, based on everything we've seen, and there's a macroeconomic recovery, which we're currently not forecasting for fiscal 2021, I would expect that, that would recover as well. Again, it might be a different situation where we're seeing increases in churn or people leaving or shutting off applications or stuff like that, but that's not the behavior that we're seeing. And so I think if you look further out from sort of a longer-term duration perspective when there's a recovery or normalization there, I would expect that we would be a beneficiary of that, and it would become helpful and additive to growth. Clearly, we've had very good customer additions as you can see in the numbers, and I think that sort of speaks to the product market fit and the long-term opportunity that we have.

Raimo Lenschow, Analyst

Okay. Perfect. Thanks for the color. Thanks for the extra color that was very helpful.

Operator, Operator

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

Ittai Kidron, Analyst

Thanks. Good quarter. Michael, I want to kind of dig in on your view for the next quarter and kind of tied up potential into the activity in this quarter around the pipeline. Is there a way for you to gauge – it sounds like you expect – you're clearly ending the quarter with lower levels of pipeline versus last where you had some things outstanding that you closed in the quarter. Is there a way to think about whether there was some business that was pulled forward from the second quarter into the first quarter that perhaps there was a little bit of a mentality of I might lose a budget, so let's go ahead and accelerate the project? Is there anything to be made around that?

Michael Gordon, COO and CFO

Yes. We didn't really see anything like that. I mean, obviously, in any quarter, there are some deals that you get that you didn't expect to get or deals slip or whatever. And when we've seen meaningful variances there, we've tried to call that out. But no, we didn't really see anything like that. I think the key things to think about in terms of Q1 and maybe, in particular, Q2 relative to Q1 because, obviously, we're guiding down sequentially is Q1 was a really strong EA quarter. And given the term license revenue under 606, that makes it a really tough sequential compare. Secondly, as we said from March, and it continues through to today, we expect a bigger impact in Q2 from coronavirus and the challenges that we have from the overall market. And then third, we mentioned the slower growth from existing Atlas customers in Q1. We only experienced that for a partial quarter in Q1. And so I think that's – you need to think about that happening for the full quarter in Q2. So I think that's really it. I don't think about it. It's necessarily about smaller or weaker pipelines. We're seeing, as Dev mentioned in his remarks, really strong engagement and customer activity and everything else like that. So I wouldn't think of the guide in that context. I think about it more in terms of the factors that I just walked through.

Ittai Kidron, Analyst

Maybe then as a follow-up to that, regarding these comments, if you think about the EA performance this quarter, which clearly was very strong, can you tell us if it was in line with your expectations? Was there something unusual there? And I'm kind of asking it also in the context of next quarter, is it fair to say the pipeline around EA is probably much weaker relative to what pipeline in Atlas is it heading into the next quarter?

Michael Gordon, COO and CFO

Yes. I wouldn't think about – I'd probably not for me to get into sort of pipeline, let alone sort of pipeline by product or channel or anything else like that. So I wouldn't – I don't think that's like the right way to head down. I think if I'm looking at Q2 guide relative to Q1, I go back to the things I mentioned in terms of the tough sequential compare given the strong EA quarter, the big COVID impact in Q2 and then the full quarter of the slower growth.

Ittai Kidron, Analyst

Very good. Good luck, guys.

Operator, Operator

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

Joey Marincek, Analyst

Thank you. This is Joey on for Pat. First, how are you guys thinking about M&A at this point? And then maybe back to partnerships. Can you just give us an update on the Alibaba Cloud partnership? Thank you so much.

Dev Ittycheria, CEO

Thank you, Joey. Regarding mergers and acquisitions, we currently do not have specific plans to pursue any new technology acquisitions. However, we remain open to opportunities. Since I joined, we have made three acquisitions: WiredTiger in 2014, mLab, and most recently, Realm last year. These were strategic decisions that helped us enhance our product offerings and generate more momentum in our Atlas business. We are primarily focused on organic growth, but we are aware that the macroeconomic situation has worsened, and some businesses may be struggling. This could present opportunities to acquire valuable assets in the market. Our approach to acquisitions will depend on how they can further enhance our product platform. At this time, we do not see any imminent acquisition plans on the horizon. As for partnerships, we are very pleased with our relationship with Alibaba. They recently updated us on their progress since the operational aspect of our collaboration began around six months ago. They informed us that demand has exceeded their expectations. While we are not incorporating this into our guidance, they have indicated that the market for MongoDB products in China is robust, and they are optimistic about the customer traction they are achieving. This provides strong evidence of our value proposition and highlights why customers, not only in North America and Europe but also in significant parts of Asia, are drawn to MongoDB.

Joey Marincek, Analyst

Great. Thank you. Very helpful.

Operator, Operator

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

Brent Bracelin, Analyst

Thank you for taking my question. Dev, I wanted to get your perspective on the database market, especially looking beyond the current business conditions you are guiding us through. What do you anticipate happening in the industry in a post-COVID world? Given the uncertainty, do you think it will be more challenging to persuade enterprises to switch to database vendors? Is there a willingness to accelerate digital projects? Looking beyond the short term, what are your thoughts on industry adoption trends after COVID?

Dev Ittycheria, CEO

Yeah. I would say it's not harder. It's actually becoming easier because what COVID and the pandemic is basically causing everyone to recognize, even the most technically conservative or cautious customers that just staying on legacy technology is not the place to be. What people need is the ability to move quickly, and they need to be able to change directions quickly too. So they need to be able to respond to new threats or seize new opportunities. And so MongoDB plays right into that, like gives them the ability to build new features and capabilities very, very fast and really gives them a very scalable, durable mission-critical platform to build the most sophisticated applications on. So, we frankly are seeing a lot of demand. We've been running a lot of webinars. And the demand and interest level is really, really high. As I mentioned in the prepared remarks, we have over 40,000 people already registered for MongoDB.live conference. I encourage everyone on this call to try and register and try and attend as many of the sessions as possible. We have some really exciting announcements planned. And so we're seeing a lot of interest. And again, it just comes back to the fact that people want to move to more modern platforms, software is the future for almost every business. And software becomes a competitive advantage. Consequently, they want to build on a platform that enables them to build software applications quickly, to build more modern applications, leveraging mobile, machine learning, micro-services, et cetera, and to do it on a platform that has a large developer community and momentum around. And so, given all those things, we feel really good. Now, we do recognize that, obviously, the current macroenvironment is not great, but our long-term view on the business is very bullish.

Brent Bracelin, Analyst

Got it. And so it sounds like the engagement around the opportunity is certainly accelerating the risk. It sounds like is more just on around timing of when that opportunity converts to revenue, is that the right way to kind of frame kind of the increased engagement, but increasing uncertainty around the timing when that converts to revenue, is that the best way to frame it or not?

Dev Ittycheria, CEO

I would say they started a bit smaller than anticipated and will grow over time. We prefer to engage with customers sooner rather than waiting for larger deals. The more we encourage customers to use MongoDB early and for various applications, the better we can establish a meaningful relationship with them, making us the standard in their accounts. This is all positive for the long term. When we see strong new customer acquisitions, high interest and demand for MongoDB, and a large turnout for our webinars, conferences, and user events, these are all fantastic indicators for our future.

Brent Bracelin, Analyst

Very helpful color. That's all I had. Thank you.

Dev Ittycheria, CEO

Thank you.

Operator, Operator

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

Jack Andrews, Analyst

Hi. Good afternoon and congratulations on the results. I want to see if you could just update us on terms of where things stand with some of your systems integration partnerships. Could you update us in terms of where the momentum is, who's ramping up MongoDB practices these days and how that's impacting your business?

Michael Gordon, COO and CFO

Yes, I recently had a conversation via Zoom with a senior executive from one of the largest systems integrators globally, and the interest remains extremely high. Another senior executive from a different large systems integrator asked me how he could quickly gain more MongoDB skills due to the increasing demand. It's important to note that systems integrators employ many people and are eager to access talent that understands these new platforms and architectures. While they are updating their current workforce, they are also seeking new skill sets. Additionally, we have Frank D'Souza, the former Founder and CEO of Cognizant, on our Board. He is a domain expert who has significantly aided us in expanding our approach to collaborate with both large global systems integrators and smaller regional players, which we believe presents substantial opportunities for our business growth.

Jack Andrews, Analyst

That's great to hear. Just as a follow-up question, you mentioned that you are planning on pulling forward some of your planned fiscal 2022 R&D hiring. Are there any comments you can make in terms of how you're thinking about sales and marketing hiring in this environment?

Dev Ittycheria, CEO

On the marketing side, as Michael mentioned and I also noted, we are observing very attractive rates in online advertising and digital marketing. We are taking advantage of these lower rates to increase our efforts since we are seeing high returns. Therefore, it makes a lot of sense for us to continue investing in this area, especially as our self-serve business grows. On the sales side, we have an ambitious hiring plan that will depend on our results. Our investments are typically based on the success we see; where teams are effective, we allocate more resources, and if progress is slower than anticipated, we assess the situation. Overall, we are quite pleased with our sales team's performance, particularly in light of our Q1 results. I have a lot of confidence in our salesforce, which I believe is among the best in the industry, and we wouldn't be achieving these results without their strength.

Jack Andrews, Analyst

Great. Thanks for taking my questions.

Operator, Operator

This will conclude today's question-and-answer session. I would now like to turn the conference over to Dev Ittycheria for any closing remarks.

Dev Ittycheria, CEO

Well, I want to thank everyone for joining today. Obviously, this is a crazy environment, but now I want to reiterate MongoDB's commitment to culture of inclusion. This is something that's one of our core values and we're very committed to making sure that people of all walks of life are treated equally. I also want to just acknowledge that obviously, we're still dealing with the pandemic. So, I wish all of you all the best and to stay safe and healthy. With that, thank you for your time and we look forward to speaking to you soon. Take care. Bye, bye.

Operator, Operator

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