Confluent, Inc. Q3 FY2024 earnings call

• Hosted Current 2024 with over 4,200 participants from 1,200 companies, featuring discussions on data streaming and AI use cases. • Hosted Confluent AI Day, launching the Confluent for Start-ups AI Accelerator program. • Subscription revenue grew 27%, Confluent Cloud revenue 42%, non-GAAP operating margin expanded to 6.3%. • Acquired WarpStream to add BYOC deployment mechanism, enhancing data streaming platform. • Examples of customer use cases with Flink, such as a Midwest grocery chain and a Fortune 50 telecom company leveraging Flink for real-time analytics and e-commerce growth. • Over 40% of Fortune 500 rely on Confluent, serving 10 of top 10 U.S. banks, 8 of top 8 global carmakers, etc.

Subscription revenue grew 27% to $240 million. Confluent Cloud revenue grew 42% to $130 million, accounting for 54% of subscription revenue. Confluent Platform revenue grew 13% to $110.1 million, accounting for 46% of subscription revenue. Total revenue grew 25% to $250 million. Subscription gross margin reached a record 82.2%, total gross margin was a record high of 79%.

• Q4 2024 subscription revenue expected to be in the range of $245 million to $246 million. • Full-year 2024 subscription revenue raised to $916.5 million to $917.5 million. • Non-GAAP operating margin expected to be approximately 2% for full-year 2024. • Non-GAAP net income per diluted share expected to be $0.25 for full-year 2024. • Free cash flow margin expected to be between 0% to 1% for full-year 2024.

Q: Congrats on solid Q3, particularly revenue acceleration and margin expansion. When looking at digital native customers, are they starting to show more confidence in bringing on new use cases?

A: Jay Kreps said each quarter is a mix of optimization and new use cases, felt larger customers have done bulk of larger changes in environment, saw better growth this quarter and good trajectory going forward.

Q: On Flink, are the customer examples early beta customers and where is broader base in onboarding use cases?

A: Jay Kreps said they are representative, seen a ton of enthusiasm, product unlocks like private networking support and programmatic support, starting to ramp production use cases.

Q: On go-to-market, changes made at start of year paying off in customer additions. Can you talk about that process?

A: Jay Kreps said goal was to broaden reach into open source Kafka users, sales focus on targeting high-propensity accounts, product-led side trying to land more customers and track to high ROI, seeing better trajectory in landing customers earlier.

Q: On Gen AI demand, how is it showing up in customer conversations?

A: Jay Kreps said two impacts, growth in AI providers and new use cases in enterprise, set of use cases around delivering data to AI applications, different customers move at different paces but real use cases exist.

Q: On WarpStream, is it bringing into conversation for migration of open source Kafka?

A: Jay Kreps said there's a set of large open source Kafka users where wholesale migration to fully managed cloud is big jump, WarpStream's bring your own cloud model is beneficial for accessing large digital native companies.

Q: On NRR downtick and cloud acceleration, reconcile the two?

A: Rohan Sivaram said cloud grew 42% to $0.5 billion run rate, NRR dynamics show installed base health solid, digital native consumption stabilized, larger cloud customers adopting new use cases and DSP, giving confidence in NRR stability.

Q: On Q4 guide, sequential growth rate below typical seasonal patterns. Any specific to call out?

A: Rohan Sivaram said Confluent Platform business can be lumpy due to upfront recognition, onetime benefit in Q3 makes Q4 compare tough, but isolating cloud and excluding onetime benefit falls within historical trends.

Q: On federal business, any budgetary pressure?

A: Jay Kreps said federal was reasonable, limited today as only Confluent Platform, waiting to open up Confluent Cloud side for bigger impact.