Couchbase, Inc.

Greetings and welcome to the Couchbase First Quarter 2025 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, you may begin.

Good afternoon and welcome to Couchbase's first quarter 2025 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. Forelooking 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. A reconciliation of these non-GAAP financial measures and 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. We entered fiscal 2025 with strong momentum, coming off a historic 2024 for CouchBase. where we achieved important Capella milestones, accelerated our net new ARR growth, increased the cadence of innovation with multiple enhancements and new capabilities on our platform, and enacted initiatives that drove increased leverage and efficiency across the business. I'm pleased to report that we've made continued progress on our growth inflection and efficiency in Q1, delivering revenue and operating loss results that exceeded the high end of our outlook. Annual recurring revenue, or ARR, was $207.7 million, up 21% year-over-year, inclusive of a definitional change noted in our press release that Greg will discuss in more detail in a moment. Revenue in Q1 was $51.3 million, up 25% year-over-year, $2.4 million ahead of the high end of our guidance range. Non-GAAP operating loss in Q1 of $6.7 million, was also ahead of the high end of our guidance range, which represented a negative operating margin of 13%, 3.5 percentage points above the midpoint of our implied operating margin guidance range. We added 19 net new logos, and Capella now represents 29% of our customer base and 11.5% of ARR. This quarter, we saw new customer wins across a variety of industries, including manufacturing, fintech, healthcare, retail, telco, and gaming. Customer interest in and uptake of Capella continues to grow, and feedback on our newest capabilities and enhancements has been very positive, as customers are looking to Couchbase to enable the next generation of adaptive applications. Last quarter, I discussed the leverage that I saw building across our business as a result of our efforts to improve operational rigor and efficiency, and we made further progress on this front in Q1. Our first quarter Rule of 40 score improved by over 12 points year over year and 23 points from Q1 of fiscal 2023. This was also our first quarter of free cash flow positivity, and we remain on track to deliver on our profitability commitments we made at last December's Analyst Day. Driving efficiency across go-to-market, R&D, and all aspects of our operations will continue to be one of our highest priorities for fiscal 2025. Despite these achievements in the quarter, our ARR performance was impacted by more pronounced timing dynamics than we anticipated. As we've often discussed, given our customer base of large enterprises, the mission critical nature of many of the applications we support and the sensitivities that our renewals, upsells, and Capella migrations have on our reporting metrics, including ARR, quarterly timing is always an important element of our business. Now, we pride ourselves on focusing on what we can control while also accounting for a variety of uncertainties that are not always in our control, including deal timing. However, these dynamics, in combination with the ongoing macroeconomic headwinds, including longer deal cycles and elevated budget scrutiny, had an outsized impact on our ARR balance at the end of the quarter due to several deals which pushed beyond Q1. That said, we don't see any change to the momentum in our business or our ability to achieve our full year objectives. Adding to our confidence is that several of these slip deals have since closed and several more are expected to close this quarter. More broadly, I continue to be very encouraged with our progress across many aspects of our business, including our strengthening pipeline, the growing relevance of our foundational technology and architecture, increasing demand for Capella, the strong interest in our new platform capabilities, the momentum building behind our go-to-market motion, and especially the aforementioned efficiency improvements. As such, we believe that our ARR result in the quarter doesn't fully reflect the momentum we are seeing in our business and the trajectory of our business going forward. Now, turning to product, I'm excited to share customer feedback on some new features we've announced over the past few quarters. These new innovative capabilities further enhance our ability to enable the building of adaptive applications alongside an evolving AI landscape. The first of these features was our co-pilot capabilities, Capella IQ, now in GA, which allows developers to interact with Capella using natural language. Feedback on Capella IQ has been positive and customers are seeing results. A leading European travel comparison and booking website is leveraging Capella and the IQ co-pilot to power development for their search engine and e-commerce platform for storing user data related to bookings and payments. They have migrated these apps to Capella to automate more of their operations and significantly reduce their maintenance and administration investment. Next, we announced our Capella Columnar service, which converges operational and analytic workloads in real time on a single platform. Customers who are using Columnar in private preview are valuing its ability to connect to multiple data sources, deriving real-time insights using the same familiar SQL++ query language for both query and analytics workloads and are benefiting from the simplified architectural approach of having their operational and analytic infrastructure tightly integrated. In Q1, we delivered the general availability of Vector Search to help businesses bring to market a new class of AI-powered adaptive applications that engage users in a hyper-personalized and contextualized way. Couchspace now supports retrieval augmented generation techniques, or RAG, in the cloud and the data center with mobile and edge vector search in public beta. Initial feedback on our vector search capabilities has been very positive. Customers appreciate having access to this feature across our entire platform and like the architectural simplicity inherent in not having it as a separate component within their infrastructure. Our customers are envisioning a range of use cases, including adding hyper-personalized content generation into their applications and enhancing applications with hybrid search, which combines traditional search and similarity search all at once. We also remain focused on adding capabilities that make it easier for developers to rapidly create applications and increase developer engagement with Couchbase. Recent enhancements include the release of a new AI-powered documentation chatbot built on AWS Bedrock and adding social sign-on for Google and GitHub. The introduction of social sign-on for Capella has contributed to significant growth in Capella sign-ups. In fact, the number of trial sign-ups per day more than doubled since the introduction of social SSO. Our foundation will always be our ability to support mission critical workloads with our leading performance and scale. And we continually add new features and services that enable our customers to power the applications they use to run their businesses. We've extended our alert notification capabilities so that external monitoring systems such as ServiceNow can receive alerts from a Capella cluster, further integrating Couchbase in the enterprise. We also added simple graph traversals using recursive common table expressions in SQL++, meaning developers can easily navigate relationship hierarchies like org charts within their applications, unlocking new workloads. And we introduced customer managed encryption keys to elevate customers' control over data security. These capabilities enable organizations to use Couchbase for new mission-critical workloads. For example, Couchbase powers Verizon ThinkSpace, an innovative end-to-end IoT development platform that helps enterprise customers build and deploy IoT solutions. Verizon originally needed a database with high availability and superior performance to provide real-time visibility and status of the IoT devices to customers. Verizon is planning to consolidate multiple databases into Couchbase to simplify database administration and further reduce TCO. Verizon is not alone. While customer needs can vary from company to company, a common trend we see across industries is a desire to lower TCO. Couchbase sets itself apart due to the features and dependability that I've already discussed, but it's also our proven ability to lower customers' overall costs. Best-in-class price performance isn't just about delivering lower costs. It's also about helping organizations reduce or eliminate existing costs by delivering incremental opportunities for efficiency. This can include cost savings from database consolidation. Customers like BroadJump, TalentSky, and Rakuten all selected Couchbase for our extensive features and exceptional price performance. Rakuten is a global technology leader in services that empower individuals, communities, businesses and society. Leveraging Couchbase to power its programmatic advertising systems, Rakuten was able to reduce its total cost of ownership by 20% through database consolidation using Couchbase's easily scalable platform. On the go-to-market side, we are continuing to make enhancements to our go-to-market motion in order to fully capitalize on our opportunity with our continued focus on operational discipline and gaining sales efficiencies. We're creating more intentionality on how we qualify new logos, migrations, and opportunities for expanding the use of Couchbase for existing applications while bringing new applications onto our platform. This includes driving improvements in how we identify prospects and compelling events that necessitate a fresh and modern approach that Couchbase offers. We're also placing more focus on strategic account teams that are supporting our largest customers while allocating an increase in dedicated resources focused on generating new business. We need to make further progress on these efforts throughout fiscal 2025, which we believe will enable greater efficiency in our customer success and upsell motions and ability to win new applications, both of which will contribute to sustained growth. Finally, this quarter we announced the appointment of Julie Irish as Couchbase's first Chief Information Officer. In this role, Julie's driving Couchbase's global IT strategy in alignment with our key business objectives. She's leading the global IT and security team and setting the strategy for systems and IT to position Couchbase's internal infrastructure and product security for future growth and effectiveness. We're thrilled to have Julie as part of our world-class team. As we look toward the rest of fiscal 2025, I remain confident in our mission, our strategy, and our ability to achieve our objectives. While I am not satisfied with the full extent of our results in Q1, we made progress on our strategic priorities, and I believe that we have everything we need to make this year another exceptional one for Couchbase. Our foundation rests upon a carefully architected platform, purpose-built to enable mission-critical adaptive applications that are often being deployed at the edge in increasingly AI-powered world. We will continue to work tirelessly to support our customers and acquire new ones, enhance and extend our technology leadership, deliver new capabilities and services, drive increased Capella adoption, and we'll do so in a more efficient manner and with a maniacal focus on a Rule 40 trajectory. At the same time, We will prepare and manage against the things we cannot control, the macroeconomic environment and timing dynamics that are not always predictable. As I've said many times at Couchbase, we attack hard problems driven by customer outcomes. With that, I'll now hand the call over to Greg to discuss our results in more detail. Greg?