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Couchbase, Inc. (BASE) Q1 2024 Earnings Call Transcript

Couchbase, Inc. (BASE)

Q1 2024 Earnings Conference Call

Company Participants

Edward Parker - Head of Investor Relations

Matt Cain - President and Chief Executive Officer

Greg Henry - Chief Financial Officer

Conference Call Participants

Sanjit Singh - Morgan Stanley

Rob Oliver - Baird

Kash Rangan - Goldman Sachs

Raimo Lenschow - Barclays

Howard Ma - Guggenheim Securities

Rudy Kessinger - Goldman Sachs

Taz Koujalgi - Wedbush Securities

Presentation

Operator

Greetings, and welcome to the Couchbase First 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. [Operator Instructions] As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Edward Parker, Head of Investor Relations. Thank you, Mr. Parker, you may begin.

Edward Parker

Good afternoon, and welcome to Couchbase's first quarter 2024 earnings call. We will be discussing the results announced in our press release issued after the market close 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 and 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 a 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, our 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 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.

Matt Cain

Thank you, Edward. And good afternoon, everyone. On today's call, Greg and I will provide details on our first quarter results, as well as our second quarter and full-year fiscal 2024 guidance. I'll start off with a few highlights of our Q1 financial results.

Couchbase delivered a strong quarter beating our guidance across all metrics. I'm pleased with the team's execution on our strategy to deliver topline momentum, while outperforming on profitability all against a difficult economic environment. Total annual recurring revenue or ARR was $172.2 million, up 23% year-over-year. Revenue in Q1 was $41 million, up 18% year-over-year.

Our non-GAAP gross margin remains best-in-class at 86.4%. Non-GAAP operating loss was $12.9 million and non-GAAP operating margin was 5 percentage points above the midpoint of our implied guidance range, demonstrating our continued operating expense discipline and focus on driving leverage in our model. I'm proud of how the business is performing despite the macro environment. And I believe we are more strategically aligned than ever before. Indeed, while there are external factors outside of our control, we continue to focus on what we can control. Innovating and investing for an exciting future, while placing increased rigor on our expense discipline.

Recall that last quarter, we laid out 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. I'll comment on Capella and our go-to-market progress and Greg will provide more details on the impact they're having on our growth and leverage results.

Starting with Capella. Our R&D team is rapidly innovating to enhance our offering, reduce barriers to adoption and deliver even more value for customers. Last week, we announced our newest release of Capella, which will be accessible by the popular developer platform Netlify and features a New Visual Studio Code extension. This release makes it easier for developers and development teams to build modern applications on Capella. We also extended Capella's enterprise features and deployability, including new time series data capabilities to support a broader set of use cases.

Looking forward, we will continue to focus our product innovation towards making Capella more accessible for customers and on improving the developer experience, all while delivering the enterprise-grade capabilities that have been the core of our DNA. In addition to Capella innovation, we continue to invest in initiatives that drive developer adoption and more efficiently drive growth. These are enabling users to discover the power of Couchbase sooner and are accelerating product-led growth for both new and existing customers.

As a result of our efforts, we're enjoying higher engagement and visibility at more developer meet-ups and conferences, increased content consumption on a revamped developer website and valuable feedback from some of our most strategic customers at developer workshops. Customers are selecting Capella for their long-term cloud modernization strategies due to its performance, speed, scalability and flexibility advantages. Capella's best-in-class TCO and unique value proposition are especially important differentiators for cost-conscious customers during times like this.

On the go-to-market side, we continue to create further sales and marketing efficiency by driving ongoing operational improvements and investing in our partner ecosystem. Last month, we announced the availability of Capella on Microsoft Azure marketplace further simplifying the process for customers to adopt Capella and deploy applications on their cloud of choice. We are excited about the opportunity for our Azure partnership to accelerate the adoption of Capella and bring the power of Couchbase to more organizations.

Also on the partnership front, we are building on the momentum of our recently enhanced ISV partner program in conjunction with our expanded relationship with AWS through the launch of our ISV Starter Factory. This program supports ISVs with additional tools and resources to build and modernize their applications with Capella on AWS, reducing complexity and making it easier for organizations to modernize and migrate their applications.

We remain closely aligned with AWS and are excited to participate in an increasing number of go-to-market activities with them. These include joint asset creation, developer engagement and AWS summits around the world. We will continue to evolve and broaden our partner ecosystem in order to help organizations accelerate their application development journey and grow our reach in the market.

Now turning to wins from the quarter. I am pleased with the breadth of our customer activity across a broad range of industries, including technology, e-commerce, healthcare and travel. Starting with Capella, we're seeing increasing engagement and uptake of our as a service offering. During the quarter, we crossed a key milestone with the number of Capella customers now in the triple-digits growing dramatically year-over-year. Some exciting new wins included a fast-growing pet health and wellness company, a NextGen real estate technology company and a revenue cycle management software company.

We also continue to see existing customers migrating to Capella. A Fortune 500 energy customer that leverages Couchbase for its main field application decided to migrate a meaningful portion of its estate to Capella. This six-figure deal was one of our largest Capella deals in the quarter demonstrating how our large enterprise customers can leverage the full capabilities of Couchbase while enjoying the greater flexibility, efficiency in TCO inherent to our on-demand offering.

A Capella expansion during the quarter came from public and is really based online media company, which uses Couchbase to power its indexing and query for its search engine. As public continues to scale its business, it's expanding its investment in Capella, because they see compelling cost efficiencies compared to competitor solutions.

On the enterprise front, we want to spotlight LinkedIn, who serves over 1.4 million profiles per second at its peak. They recently published an article outlining how their existing open source platform could no longer address the loads on their storage infrastructure, which was doubling every year. LinkedIn selection of Couchbase as a centralized storage tier cash resulted in more than a 60% reduction in tail latencies and trim the cost to serve by over 10% annually.

Now turning to some thoughts on the near-term environment. As I have said before, there are things we can control and things we cannot control. We were prepared for both heading into Q1 and the quarter played out largely as we expected. One variable we, of course, cannot control is the macro environment. As we discussed last quarter and as you've been hearing from many of our technology peers, the uncertainty and volatility continues to present headwinds for IT spending. We're seeing 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 and I am extremely pleased with our ability to navigate these headwinds. At the same time, we feel good about what we can control which includes driving operational efficiency while preparing for the future by building our field capacity and pipeline.

We're committed to improving our profitability and if necessary have the right levers to find further leverage in our model and react accordingly. That said, demand indicators remain strong and we continue to see a healthy pipeline of deals and interest in our cloud database platform. The big secular trends of digital transformation, acceleration of the cloud and innovation at the edge are still in our favor.

I'd be remiss if I didn't mention the topic dominating everyone's minds. Let me spend a moment touching on how the fast-moving wave of AI-driven applications will power if not accelerate the secular tailwinds that offer specific opportunities aligned with our strengths. At Couchbase, we're exploring a wide range of initiatives both internally and externally to leverage AI to increase efficiencies across various aspects of our business. Some examples of this include research, generating tests and test data for code, exploring how generative AI can drive developer productivity and adoption of Capella and making our platform more operationally efficient.

And while the benefits for Couchbase specifically in the industry more broadly are real and exciting, we believe the implications for our business and mission are more profound and increasing productivity and efficiency alone. Consider the following: the processing of unstructured data in real-time is becoming a necessity; modern applications require predictive insights and real-time decision-making for personalization; and the models are moving closer to the data for improved control and faster time to processing; this series of events collides when enterprises, who are building AI-driven insights into their next-generation applications leverage AI to run private models.

It's at this point, where enterprise will require the combination of a high-performance operational database with analytical functionality making this an exciting opportunity for Couchbase. Much of the promise of generative AI is only recently being understood. But these core concepts will be familiar to many of you, who have been following Couchbase, because they are all foundational elements of how we are architected. Clearly, there is more to do to capitalize on this opportunity, but you've often heard me say that Couchbase has been built for this moment and I think that's as true today as it's ever been.

In closing, we had a solid start to the year and the secular drivers behind our business remained strong. We're making progress on our initiatives, our committed to focusing on what we can control and are nimble in navigating areas we cannot control. Before handing the call over to Greg, I want to emphasize one of our core values that I've repeated many times. 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?...

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