Couchbase, Inc.

Greetings and welcome to the CouchBase third 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, Mr. Edward Parker, Head of Investor Relations. Thank you, Mr. Parker. You may begin.

Good afternoon and welcome to CouchBase's third 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, product capabilities, 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. The reconciliation of these non-GAAP financial measures is 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 third quarter results, as well as our fourth quarter and full year fiscal 2024 guidance. I'll start off with a few highlights of our Q3 financial results. I'm pleased to report that we had a very strong quarter. Once again, outperforming our guidance across all key metrics. Highlights include growing Capella consumption, continued big deal activity, healthy new business and expansions, strong new customer logos, and overall excellent operational performance from all teams across the company. We continue to execute across our key priorities, deliver top line growth, increase the mix of Capella, drive sales and marketing efficiency, and accelerate the pace of leverage in our model. I believe our results this quarter demonstrate our increasing momentum across all of these fronts. Total annual recurring revenue, or ARR, was $188.7 million, up 24 percent year-over-year, up 23 percent in constant currency, and up 4 percent sequentially. Revenue in Q3 was 45.8 million, up 19% year over year, and up 6% sequentially. Our non-GAAP gross margin remains best in class at 89.5%. Non-GAAP operating loss was 5 million, and non-GAAP operating margin was 11 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. I'd like to call out our momentum with Capella, which continues to experience strong growth and is contributing more materially to our top line, as well as net retention. In fact, more than a fifth of our customer base are now Capella customers. Capella continues to be an especially important engine for new logo acquisition. which contributed meaningfully to the 24 net new customers we added across the board in Q3, doubling quarter over quarter and more than we added in the first and second quarters of the year combined. As our Capella base continues to grow, we're seeing favorable consumption dynamics emerge as both existing and new customers realize our platform's unique performance and scale, robust set of integrated services, along with ease of use and rapid time to value. In Q3, we saw multiple instances of customers consuming ahead of their initial contracts and electing to buy more, driving strong Capella consumption and contributing to our ARR and revenue outperformance. While we're still in the early innings of our journey, it's gratifying to see the investments we made in our cloud database bearing fruit as we expected they would. I am confident as ever in our ability to sustain durable long-term growth. Turning to innovation, we continue to invest in enhancements and capacities that further extend the value of Couchbase as a cloud database platform for modern applications. Recall that last quarter we talked about our four-part vision for AI. Drive developer productivity, optimize AI processing, enable AI-powered apps anywhere, and do it all with a vibrant partner ecosystem. From inception, our architecture has been built to enable the most demanding applications to not only perform, but provide rich, hyper-personalized, context-aware experiences for our end users. We refer to these as real-time adaptive applications. Combining operational and analytical capabilities Our multimodal platform seamlessly integrates advanced services like indexing, eventing, full-text search, and more in a single solution. Our platform is perfectly suited for the massive performance and scalability requirements that adaptive applications require. At AWS reInvent last week, we announced a new Capella column nurse service on AWS. which significantly enhances the ability to harness real-time analytics to build adaptive applications. At the heart of this new service is the introduction of a columnar store and data integration capability directly into Capella, which further converges operational and real-time analytic workloads into a single platform. Capella Columnar will also feature built-in natural language processing with Capella IQ, the developer co-pilot we announced last quarter. Capella Columnar is a significant technical achievement that we believe brings substantial business value to our customers. The gap between analytic and operational processing is a long-standing barrier to making it easier for development teams to include the required real-time analytics into their adaptive applications. As a result, our customers can ingest data from anywhere into Capella in real time, reducing complexity and costs all while increasing developer productivity. Importantly, this new capability is a perfect example of how we leverage our unique architecture to further capture new workloads. In this case, real time adaptive applications in our singular cloud to edge platform. Now I'd like to turn to customer wins. In Q3, we saw new Capella wins across many industries, including high-tech, government, business services, and financial services. One new Capella customer from the quarter was an AI-powered customer intelligence platform provider. A top priority for this customer was eliminating maintenance costs and saving time with the managed service as its customer engagement application grows. Initially beginning on our community edition, this customer migrated to Capella this quarter because it delivered on all of the application requirements with the most compelling price performance. We also continue to see customers expanding with Capella. YoStar Games is one of the top publishers, developers, and investors of games in Asia-Pacific. This customer initially selected Capella to deploy, manage and streamline its game database services. It has continued to invest in our database as a service because of Capella's impressive price performance, stability and superior database performance to support rapid customer growth as its game continues to scale. Another Capella expansion from the quarter came from a leading global design and hospitality company. This customer leverages Couchbase to manage, organize, and analyze data for order management, fulfillment, and pricing for the thousands of products in its catalog. This customer originally selected Capella to reduce the maintenance and operational costs associated with the self-managed database and made the strategic decision to expand its investment in Capella this quarter for additional operational benefits. Switching to new enterprise wins, we landed a Canadian subsidiary of an American multinational financial services corporation. This customer selected Couchbase to power a real-time trading analytics application to analyze market trends, enabling traders to make more informed decisions. This customer selected Couchbase for its superior database performance and high availability. Another new enterprise customer this quarter was a communications services provider that offers a low cost, high quality mobile service for its customers. This customer needed a high availability database platform to support the mobile billing system for its more than 5 million mobile carrier service subscribers. This customer selected Couchbase because the database's impressive scalability and suitability for cloud orchestrations while maintaining superior performance. Now, let me provide a few thoughts on the near-term demand environment. As we've discussed all year, the macro uncertainty continues to present headwinds for IT spending, and we continue to see elongated deal cycles, extra layers of scrutiny and approval, and customers electing to buy in smaller increments. These trends again persisted throughout the quarter. That said, I'm very pleased with our execution against these headwinds. We continue to not only see a healthy pipeline of opportunities for our cloud database platform, but also strengthening consumption trends as we start to achieve scale with Capella. And despite the challenging macro environment, organizations continue to invest in long-term digital transformation initiatives. where we're increasingly playing a strategic role in enabling these journeys. While we would prefer a stronger demand backdrop, we're seeing a growing desire for lower TCO and faster time to value, both of which play to our strengths and are creating additional opportunities for us as a company. You've often heard me say that Couchbase has been built for this moment, and I think that's as true today as it has ever been. In closing, we're making progress on our initiatives, are committed to focusing on the areas we can control, and are nimble in navigating the ones we cannot. 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 invite investors and analysts on this call to join me and the rest of the Couchbase executive team at our first Analyst Day in New York City next Wednesday, December 13th. We're excited to dive deeper into the foundation of our company, technology, and strategy, share details on Capella, and how we're reimagining the database experience and demonstrate how we're delivering on our commitment to drive efficiency across our business and financial model. Finally, as I always do, 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?