Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Confluent Inc (CFLT, Financial) reported a strong start to the year, exceeding all guided metrics with total revenue growing 25% to $217 million.
- Confluent Cloud revenue increased by 45% to $107 million, now representing the majority of the subscription revenue and the fastest-growing offering.
- Non-GAAP operating margin improved by 22 percentage points, marking the fourth consecutive quarter of significant improvement.
- The company added 160 new customers, the largest sequential growth since Q1 2023, indicating strong market demand and effective customer acquisition strategies.
- Confluent Inc (CFLT) showcased significant product innovation, including the launch of major features like Flink and Tableflow at the Kafka Summit, enhancing its competitive edge in data streaming technology.
Negative Points
- Despite strong growth, Confluent Inc (CFLT) still reported a non-GAAP operating margin of negative 1.5%, indicating ongoing challenges in achieving profitability.
- The company's reliance on the fast-growing but highly competitive cloud market segment could pose risks if market dynamics shift unfavorably.
- Confluent Inc (CFLT) faces intense competition from other data streaming platforms and cloud services, which could impact market share and pricing power.
- The transition to a consumption-based sales model, while showing early positive signs, involves significant changes that could disrupt sales cycles and customer relationships.
- While the company is innovating rapidly, the continuous need for high investment in technology and market expansion could strain financial resources and affect long-term sustainability.
Q & A Highlights
Q: Congrats on a solid start to the year. Jay, I want to go back to the big macro environment in terms of just the pace of new software development projects. I remember last year, that had definitely slowed down quite a bit. What are you seeing now in terms of just new software development initiatives? And maybe you can sort of tie that into some of the sales transformation efforts that you have thrown on new organization?
A: (Edward Kreps - Co-Founder, Chairman & CEO) Yes. I think we've seen overall stabilization. I would say the focus for a lot of our customers over the last year was really heavy focus on cost optimization with some amount of new developments, but really only the most necessary things. I do think that's picked up a little bit. The -- that's probably most pronounced in the digital native segment where they were probably the hardest hit last year. And they probably have the biggest bounce back in terms of focus on AI-related initiatives and other developments. So I would say that's positive.
Q: It's good to hear. I really appreciate the breakout on some of the new product contribution in Q1 2024. In terms of the monetization strategy across the pillars of DSP, could you just sort of just outline that for us? And how does Tableflow potentially get monetized overtime?
A: (Edward Kreps - Co-Founder, Chairman & CEO) Yes. Yes. So each of those represents kind of a distinct monetization opportunity. So the connectors, we charge for each of these connectors. There's a couple of pricing levers but it roughly correlates with how many instances of the connector and the amount of volume of data flowing. For Flink, it's kind of the compute hour is very similar to the models you'd see for other processing services like Snowflake. For Governance, it's an uplift that comes as kind of a flat fee as you move to our advanced governance package as well as something that scales up with your usage of the product. And Tableflow is new. So it's just an early access. Now, we haven't announced any pricing but that will also have monetization opportunities that go along with it.
Q: Congrats on the results. Really nice to see. Maybe as a follow-up to Sanjit's question. You guys have a lot of company-specific drivers that are certainly seeming to be apparent in your numbers. I'm just sort of curious, could you help us think about how important improving hyperscaler trends and growth rates that we're seeing in that is also relevant to your success? Just trying to get a sense for how much of it is just sort of more of the environment versus complement specific?
A: (Edward Kreps - Co-Founder, Chairman & CEO) Yes. Yes, it's a question. I mean I don't know that the specific performance of other companies directly drives us but there's obviously some amount of correlation in all spend in the cloud. If we were breaking out the different things, I would say the success of our consumption transformation thus far. That's an important factor. I think the kind of DSP components that Rohan outlined are early contributors probably, Connect is the furthest along, followed by Governance and Flink just went GA. So that's just starting to ramp to revenue contribution, it'll contribute more coming into next year.
Q: If I can just follow up, actually as a nice tie. It sounds like, Jay, you mentioned 600 prospects have tried Flink. It's great to hear. I mean we're starting to hear it show up in partner conversations as well. It sounds like a '25 thing. I'm just wondering Rohan, to -- when you think about it in guidance, are you featuring any Flink contribution in the second half of '24?
A: (Rohan Sivaram - CFO) Matt, thanks for your question. Well, we've said this before, really Flink is a big opportunity for us. And 2024 is all about adoption and 2025 is all monetization. So from an overall what's included guidance, we're basically assuming that the contribution -- the material contribution from Flink will happen in fiscal '25.
Q: Congrats from me as well. Jay, on the Flink side, now that you have proper early customer conversations, what are you seeing in terms of the adoption curve you seeing there? And you obviously saw -- have seen Kafka before. What's the early customer conversations there? And what does it drive you if you think about the addressable market coming out of that one?
A: (Edward Kreps - Co-Founder, Chairman & CEO) Yes, I would say it's been very positive. There's incredible enthusiasm in our customer base really across the broad set of customers from the kind of digital native to large enterprises. It's early in the adoption for any of these cloud offerings. Nobody wants to build production workloads against the pre-GA product. So this kind of milestone of going GAs really kind of the starting line and then it's really about the build of production workloads. And each workload adds a little bit of continuous revenue production. And as those build up within customers, that's where it starts to contribute meaningfully.
Q: Yes. And then one follow-up, Rohan, where I get a lot of the questions at the moment from the financial committees on RPO, cRPO. Maybe it's worth a reminder why that's kind of -- how that number came together and how that number needs to be seen in the overall context of the results?
A: (Rohan Sivaram - CFO) Absolutely. Raimo, we've called it out last quarter. When we think about the consumption transformation, one of the important changes that we are driving is making sure we're driving and incentivizing and focusing on consumption and not the commitment from the customer. And what that means is RPO is nothing but the commitment from the customer. And that not a huge focus for us because what drives Confluent Cloud is next unit of consumption. And as result of that, we said that when you think about the forward-looking indicators of our business, consumption revenue and subscription revenue are true indicators of organic growth and that will be probably a more leading indicator than RPO, cRPO.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
