Couchbase, Inc.

Hello, and welcome to the Couchbase third quarter fiscal year 2023 earnings call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Edward Parker, head of investor relations. Please go ahead.

Good morning, and welcome to Couchbase's third quarter 2023 earnings call. We will be discussing the results announced in our press release issued before the market opened today. With me are Couchbase's Chairman and CEO, Matt Cain, and CFO, Greg Henry. Today's call will contain forward-looking statements, which include statements concerning financial and business trends and strategies, market size, our expected future business and financial performance and financial condition, and our guidance for future periods. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. forward-looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For discussion of the material risks and other important factors that could affect our actual results, please refer to the risks discussed in today's press release and our most recent annual report on Form 10-K or quarterly report on Form 10-Q filed with the SEC. During the call, we will also discuss certain non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles. reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these metrics and other metrics is included in our earnings press releases, which are available on our investor relations websites. With that, let me turn the call over to Matt.

Thank you, Edward, and good morning, everyone. On today's call, Greg and I will provide details on our third quarter results, as well as our fourth quarter and full year fiscal 2023 guidance. I'll start off with a few highlights of our Q3 financial results. Couchbase delivered another strong quarter. In addition to beating our guidance across all metrics, our results were highlighted by growing momentum with Capella, healthy new customer logos, including our largest new logo deal in company history, strong retention metrics, and ongoing large deal activity. I'm also pleased with the progress we made operationally across the company headlined by our product and go-to-market teams driving continuous improvements that will serve us well into the future. Revenue in Q3 was $38.6 million, up 25% year-over-year. Total annual recurring revenue, or ARR, was $151.7 million, up 24% year-over-year, and up 28% in constant currency. Our non-GAAP gross margin remains best in class at 88%. Non-GAAP operating loss was 9.6 million, 15 percentage points above the midpoint of our guidance range, driving a 14-point improvement in operating margin from Q3 of last year. As we scale, we will continue to complement our strong top-line momentum with a focus on driving more efficient growth and operating leverage in our model. We exited the quarter with 658 customers, an increase of 26 from Q2, and saw meaningful new logo contribution from Capella. Despite a more challenging macroeconomic environment, we are well on our way to achieving what we laid out to do this year. Accelerate growth, grow our cloud mix, improve our go-to-market efficiency, and drive operational leverage. It's gratifying to see the investments we've made in our cloud database platform starting to bear fruit, and I want to thank all our dedicated team for their tireless efforts. Greg will provide more detail on our results in a moment, but first let's discuss some highlights in the quarter. To begin, we continue to make rapid progress with Capella. We have reimagined the database experience with a fast, flexible, and affordable cloud database platform for modern applications. allowing organizations of any size to quickly build applications that deliver premium experiences to their customers, all with industry-leading performance. In today's more constrained budgetary environment, our best-in-class total cost of ownership is especially compelling for companies that are unwilling to trade off performance and price. While it's still early, I'm thrilled that Capella is becoming an increasingly important contributor to our business. In Q3, we saw robust bookings growth, meaningful new Capella logo additions, as well as migrations, and a rapidly growing pipeline of exciting Capella opportunities across both new and existing customers. You will hear examples of our progress in some of the Capella customer wins and expansions I will discuss in a moment. On the product front, we remain focused on enhancing the developer experience. And we again made exciting progress during the quarter. We recently commissioned a global survey of 650 senior IT decision makers, which revealed that 88% of developers are under pressure in their digital transformation initiatives and in the race to the cloud. They also face an endless array of highly complex, multi-factor developer tool change. To address this challenge, in October, we announced a newly designed Capella user interface that increases developer productivity and agility. The updated user interface is inspired by popular technologies that millions of developers already use to build applications, giving them a familiar design and navigation experience. This sense of familiarity makes it easier for developers who are new to Capella to build next generation applications on our platform. Another innovation during the quarter is a high data density storage engine with compute and storage advantages that increases performance processing speed by up to 4x while utilizing 10x less memory. This enhancement reduces the total cost of ownership of our cloud database platform and further widens the TCO gap compared to other databases of service offerings. Additionally, Capella now offers enhanced security and single sign-on capabilities. including successfully completing a SOC 2 Type 2 audit and delivering support for HIPAA-compliant applications, which meet broad enterprise requirements for cloud applications. We're also pressing our gains with our cloud provider partners. We launched our managed service offering on AWS just over a year ago. We then added support for Google Cloud over the summer, and in the short time since then, we have seen meaningful adoption from customers who prefer to leverage Google's infrastructure. This is core to the Capella value proposition. Start with leading performance at scale, then offload the resource-consuming database administration experience, and let customers tell us which cloud service provider they prefer to deploy with, resulting in a unified deployment and usage model from cloud to on-premise from the data center to the edge and everything in between. We remain on track to round out our hyperscaler availability with the addition of Azure by the end of our fiscal year. I am also proud that industry-leading analyst firms have recognized our innovation and execution on our vision. In its Q4 2022 Translytical Data Platforms Report, Forrester rated Couchbase as a strong performer and gave us a perfect five out of five score on our execution roadmap. On the go-to-market front, we're continuing to enhance all aspects of our sales motion. We are executing well on our high touch enterprise sales motion. And as the world returns to in-person meetings, we're back to doing what we do best, being in front of customers and helping them drive their most strategic digital transformation initiatives. Importantly, As you'll recall, we've been building increased operational rigor across our sales teams with a laser focus on increasing sales efficiency. There's much more to do on this front, but I'm proud of the progress we're making. And I'll note that the investments we have made have been especially impactful with Capella, where we are engaging a new audience of developers who prefer to buy from rather than be sold to. We recently announced the new Couchbase Ambassador program, which allows developers to share their knowledge and expertise with broader developer audiences. And our recently launched Couchbase Community Hub brings together users and contributors to foster increased sharing, learning, and discovery. We continue to see robust interest in our free trial model, strong engagement from existing customers, and great responses to our developer and community workshops. This will only further add to the growing efficiency of our go-to-market strategy. Our partner and alliance ecosystem remains strong and continues to contribute to our go-to-market acceleration. In Q3, we saw strong bookings grow sourced by partners. In fact, we had our largest quarter of new customer logos sourced by partners with ISVs, CSPs, and SIs all contributing. In particular, I am excited that our cloud partnerships are driving bigger wins for us. In fact, we had sizable transactions with all three cloud providers during the quarter. With AWS, our co-sell engagement continues to deepen. We've been working with AWS to target ISV software companies that are building applications powered by Capella on AWS. And recently at AWS reInvent, where we were a gold sponsor, we announced that Arthrex, a global leader in minimally invasive surgical technology, is partnering with Couchbase and AWS to improve patient outcomes. This close alignment with AWS has culminated in a broadened collaboration, which we also announced at reInvent. Under this multi-year strategic collaboration agreement, Couchbase and AWS have committed to offering customers integrated go-to-market activities, commercial incentives, and technology integrations. I am excited for this broadened collaboration to accelerate and streamline customer migrations to Capella Next, I'd like to highlight some key customer wins from the quarter. Overall, I am pleased with the breadth of our customer activity across all parts of our portfolio, including mobile, server, and especially Capella. I'll start with Capella. A new Capella customer and logo in the quarter is a market leader in secure API connectivity for financial institutions. This customer was interested in migrating its on-premises applications to the cloud. They needed a high-performance database as a service, and after experiencing the operational and financial value of Capella, this customer will be consolidating three other NoSQL cloud databases to Capella. This database consolidation trend speaks to both the breadth of Capella's multimodal capabilities and the best-in-class price performance that we offer our customers. In addition to new logos, we are seeing an acceleration of existing customers migrating to Capella. Yapstone, a global provider of digital payment solutions and processing, migrated from our enterprise edition to Capella. Yapstone initially began with our core platform because it needed a fast and flexible database to power its profile management application and deliver a premium experience to its customers. For this customer, the big driver to embrace and double down on Capella was the lower total cost of ownership and overall efficiency. Of note, this win was driven through their executive management team, signifying that the value and cost efficiency of Capella are resonating at the executive level. We had a significant new customer win with one of India's most trusted and reputed business conglomerates in the quarter. This new customer creates consumer focused, high engagement digital products that address the needs of Indian consumers and businesses, including an app that offers an integrated rewards experience across various consumer categories. They needed a database platform that could not only deliver the highest performance and scale for its millions of customers, but they could also offer the critical mobile device sync capability so it could service customers anywhere, regardless of their smartphones, internet speed, or connectivity. They chose Couchbase for our premium capabilities and compelling value. In Q3, we also saw many great expansions from existing customers, including one of the largest airlines in the world. This customer relies on Couchbase Mobile to ensure its tablet-based pre-flight check-in process works reliably regardless of internet connectivity to streamline operations and minimize flight delays. Over the last year, as demand for travel has increased, this customer has grown its use of Couchbase to further enhance one of the airline industry's best on-time and safety records, all with a top-tier customer experience. As we look towards the balance of the year and into next year, I remain confident in both the near-term drivers and the long-term trends powering our growth. In the year and a half since becoming a public company, we've put an enormous amount of work into all aspects of our business. And as a result, we're benefiting from strategic initiatives and operational improvements that we were not enjoying a year ago, which sets us up for more effective and efficient growth in the quarters and years to come. These include a greatly expanded product portfolio with Capella just starting to hit its stride. This is opening up a large portion of the database market that until recently was unavailable to us. We've meaningfully expanded our partner ecosystem, giving us crucial channels for reaching new customers while bolstering our relevance as a strategic partner of choice for digital transformation initiatives. We've enhanced our sales leadership and transformed how we go to market across buy from and sell to motions, both in terms of efficacy and efficiency. And these initiatives are just starting to bear fruit. As our results demonstrate, we haven't seen a material impact to our business as a result of the increasing macroeconomic headwinds being felt across the technology space. However, like many of our software peers, we are seeing signs of some customers taking longer to make their buying decisions or requiring extra layers of approval, as well as a bigger focus on the economic value of our platform. We come to work every day with a degree of healthy paranoia and we remain focused on the demand environment and the uncertainty being felt across the economy. This focus continues to inform how we are looking at the near-term outlook and we've added more operational rigor to enable us to be in a position to adapt to the changing environment. Naturally, this increased rigor is squarely focused on what we can control while remaining committed to growth and improving profitability. Before handing the call over to Greg, I want to reiterate that it's my privilege as CEO of Couchbase to have the honor of leading a great team of people. One of our core values is to attack hard problems driven by customer outcomes, and I am proud of our focus on delivering for customers no matter what. Nothing prepares us for the future more than being battle tested, and my confidence in our ability to adapt and innovate in the face of macro headwinds remains strong. With that, I'll hand the call over to Greg to walk you through our results in more detail. Greg?