Couchbase, Inc.

Greetings and welcome to the Couchbase Second Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edward Parker, Head of Investor Relations. Thank you, Edward. You may begin.

Good afternoon. Welcome to CouchBase's second quarter 2024 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me are CouchBase's chair, president 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 will 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. The 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 website. With that, let me turn the call over to Matt.

Thank you, Edward, and good afternoon, everyone. On today's call, Greg and I will provide details on our second quarter results, as well as our third quarter and full year fiscal 2024 guidance. I'll start off with a few highlights of our Q2 financial results. Couchbase delivered a strong quarter, once again beating our guidance across all metrics. I am pleased with the team's execution against our strategy to deliver top line momentum while outperforming on profitability, all against a difficult economic environment. Total annual recurring revenue, or ARR, was $180.7 million, up 24% year over year, up 23% in constant currency, and 5% sequentially. Revenue in Q2 was 43.1 million, up 8% year-over-year and 5% sequentially. Our non-GAAP gross margin remains best in class at 87.2%. Non-GAAP operating loss was 9.2 million, and non-GAAP operating margin was 4 percentage points above the midpoint of our implied guidance range. This demonstrates our focus on increasing efficiency across our business and continued operating expense discipline. As we cross the halfway point of the fiscal year, I'm especially proud of the progress we're making on the four key priorities we laid out for fiscal 2024. Focus on top line growth, increase the mix of Capella, drive sales and marketing efficiency, and accelerate the pace of leverage in our model. While there is much more to do across all of these to reach our full potential, our momentum is building. We believe we are set up for a strong second half of the year, and more importantly, beyond. We have many initiatives underway to continue our progress, but I want to touch specifically on the exciting opportunity we see with AI and how it will be a tailwind for all four of our key priorities. To begin, databases are the unsung heroes of AI because without data, there is no AI. The fact is behind every application is a database. From day one, we have architected a cloud database platform that enables demanding applications to not only perform, but provide rich, personalized, differentiated experiences for end users. Combining operational and analytical capabilities, Our multimodal platform also seamlessly integrates advanced services like indexing, eventing, full-text search, and more in a single solution for developers. Our platform and unique architecture are perfectly suited for the massive performance and scalability requirements that AI applications require. We're investing in additional AI capabilities that will further extend the value of Couchbase as a cloud database platform for modern AI applications. Generative AI is the next great catalyst for modern applications. Developers and customers are exploring ways to build AI powered apps that can run anywhere with our platform. To cement our long-term position as a destination for AI applications, our AI strategy has the following four pillars. First, drive developer productivity and adoption. Second, Optimize AI processing. Third, enable AI-powered apps anywhere, including at the edge. And fourth, build and foster a vibrant AI ecosystem. With that backdrop, I'm excited that last week we announced a private preview of Capella IQ, which adds generative AI capabilities to our Capella offering to greatly enhance developer productivity. Developer productivity has never been more important given the pressure to rapidly innovate and deliver increasingly more complex workflows. This new capability in Capella will allow developers to use natural language prompts to quickly and easily generate queries and code, sample data sets, and unit tests. What used to take a developer hours to code takes minutes with Capella IQ, moving from thought to code in just a few clicks. I encourage you to visit our website and watch the demo video of Capella IQ to see just how profound of an impact the feature will have for developers. Leveraging generative AI to build and test applications more quickly and more easily in Capella leads to higher developer productivity and quality, with the ultimate result being faster and more efficient time to market. We expect this will drive increased Capella adoption and consumption. Our vision for Capella IQ is to be a co-pilot for developers that makes intelligent recommendations during the development process, and we will continue to build out and enhance this important new feature. On the go-to-market side, we continue to focus on improving efficiency by driving ongoing operational improvements and investing in our partner ecosystem. AI is undoubtedly gaining momentum across our partner ecosystem, which is why last week we also announced our Couchbase AI Accelerate Partner Program. This program is designed to make it easier for customers to build AI applications with Capella and support integrations with the broader AI and data ecosystem. It reduces friction for customers who are building and deploying models for AI applications and includes technical enablement and go-to-market opportunities for participating partners. Additionally, we continue to deepen and expand our relationships with our strategic partners who are starting to see next gen AI applications deployed on their clouds. At AWS, we're developing ongoing ways to reach and serve our customers through an increasing number of go-to-market activities around joint asset creation, developer engagement, in AWS summits around the world. And I'm happy to share that Couchbase is now a Google Cloud premier partner. The aforementioned recent announcements illustrate how exciting the AI opportunity tailwind is and how it drives further progress against our four key priorities for the year. While it is still early days, the potential for AI to drive significant transformation is enormous. That said, we continue to deliver additional important Capella innovations for customers at a rapid pace. Last week, we also announced several other new updates to Capella that further enhance the developer experience, increase efficiency, and make it easier to operate the cloud database platform. Our differentiated technology remains at the heart of who we are, and we will continue to work hard every day to rapidly bring market leading enhancements and capabilities to our offering. Now, turning to customer wins, I am pleased with the breadth of activity across industries and our product portfolio that we saw this quarter. Starting with Capella, our managed service continues to gain momentum. Once again, Capella represented the majority of our new logos and was an important contributor to our strong net retention rate. In Q2, we saw new Capella wins across many industries, including financial services, academia, manufacturing, telco, high-tech, and gaming. We also continue to see existing customer migrations and expansions with Capella. During the quarter, leading global fintech company MoneyGram decided to expand its partnership with us and invest in Capella to offload database management and further improve TCO. Switching to enterprise, we were excited to add several impressive new logos during the quarter, including a large banking group in Europe. This customer had to migrate away from Oracle because its legacy relational database was not delivering the desired performance. This customer is using Couchbase for its derivatives clearing application and selected our platform for its superior performance and speed. I'm also pleased that we won an AI powered application with Tondo Smart, a fast-growing technology company in Israel that delivers a connected devices platform for smart cities. Tondo selected Couchbase to power its cloud-based smart city management platform, including AI for city sensor operational excellence use cases. This customer needed a cloud database platform that could deliver high performance, scalability, and mobile use cases. Only Couchbase could deliver on these needs with the most compelling price performance. We also saw significant enterprise expansions with long-term customers, including a large Australian multinational banking company, one of the US's largest financial services companies, and a major consumer electronics retailer. Additionally, Tesco, a British multinational grocery retailer, and one of the world's largest retailers, has signed a multi-year agreement. Trendyall is the leading multi-category e-commerce marketplace in Turkey and one of the top e-commerce platforms in the world. Recently, Trendyall significantly expanded its partnership with Couchbase to help support many of its most important applications, including its online shopping cart, delivery tracking, product catalog, coupons, claims, inventory management, pre-orders, and customer personalization. This was one of the biggest expansions in our history, and we are pleased to be such a valued partner for Trendyall's growing business. Now, let me provide a few thoughts on the near-term demand environment. As we discussed over the last two quarters, the macro uncertainty continues to present headwinds for IT spending, and we continue to see longer deal cycles, extra layers of scrutiny and approval, and customers electing to buy in smaller increments. These trends persisted through the end of the quarter, but I am very pleased with our execution against these headwinds. That said, we continue to see a healthy pipeline of deals and interests in our cloud database platform, driven by trends such as the rapid adoption of cloud, desire for greater cost efficiency, and IT modernization. And though it is early days, we believe AI will drive a transformational impact for businesses as customers reimagine existing applications and create net new ones. AI requirements of extremely high performance and massive scale coupled with the convergence of operational and analytical capabilities, are the foundational elements of how we are architected. These dynamics are creating additional tailwinds and opportunities for us as a company, while further leveraging the very strengths that make us who we are. You've often heard me say that Couchbase has been built for this moment, and I think that's as true today as it ever has been. In closing, we're making progress on our initiatives. We're committed to focusing on what we can control, and we're nimble in navigating areas we cannot control. We remain dedicated to delivering against our key priorities for fiscal 2024. Focus on top line growth, increase the mix of Capella, drive further sales and marketing efficiency, and accelerate the pace of leverage in our model. Before handing the call over to Greg, I want to emphasize one of our core values that I've repeated many times before. At Couchbase, we attack hard problems driven by customer outcomes. With that, I'll hand the call over to Greg to walk you through our results in more detail. Greg?