Confluent (CFLT) Q2 2024 Earnings Call Transcript

Image source: The Motley Fool.

Confluent (CFLT 3.00%)
Q2 2024 Earnings Call
Jul 31, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shane Xie — Investor Relations

Hello, everyone. Welcome to the Confluent Second Quarter 2024 earnings conference call. I’m Shane Xie from investor relations, and I’m joined by Jay Kreps, co-founder and CEO; and Rohan Sivaram, CFO. During today’s call, management will make forward-looking statements regarding our business, operations, sales strategy, market and product positioning, financial performance, and future prospects, including statements regarding our financial guidance for the fiscal third quarter of 2024 and fiscal year 2024.

These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Further information on risk factors that could cause actual results to differ is included in our most recent Form 10-Q filed with the SEC. We assume no obligation to update these statements after today’s call, except as required by law. Unless stated otherwise, certain financial measures used on today’s call are expressed on a non-GAAP basis, and all comparisons are made on a year-over-year basis.

We use these non-GAAP financial measures internally to facilitate the analysis of our financial and business trends and for internal planning and forecasting purposes. These non-GAAP financial measures have limitations and should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release and supplemental financials, which can be found on our IR website at investors.confluent.io. And finally, once we’ve concluded our prepared remarks, we will post the Confluent earnings report to our IR website.

And with that, I’ll turn the call over to Jay.

Jay Kreps — Co-Founder and Chief Executive Officer

Thanks, Shane. Good afternoon, everyone, and welcome to our second quarter earnings call. I’m pleased to report a solid second quarter, once again exceeding our revenue and margin guidance despite a continuing volatile macro environment. Subscription revenue grew 27% to $225 million, Confluent Cloud revenue grew 40% to $117 million, and non-GAAP operating margin was positive, representing approximately 10 percentage points of improvement.

These results underscore the power of our data streaming platform and our relentless focus on delivering success for our customers. Today, I’ll start with providing an update on our consumption transformation. Overall, the vast majority of our rollout toward our transformation to becoming consumption-oriented is complete, a step change in how we run our Cloud business. One success indicator for our transformation is new logo growth.

I’m pleased to share that we increased our total customer count by 320 in Q2, double from the previous quarter and representing our largest sequential increase in two years. In addition to landing a higher volume of customers, we believe we have increased the quality. A strong focus on our target accounts has increased the percentage of high-propensity customer lands. Though this new consumption motion lands them earlier in their journey, we believe over time, many of these customers will represent the next wave of high consumption accounts for us.

We remain as confident as ever in the strategic position of the company and the prospects for durable long-term growth. We have the industry-leading technology in an increasingly critical and relevant category that we believe will be as important as databases. Over the past year, we’ve made a series of innovations to build out the full set of capabilities of a data streaming platform, enabling us to capture the full lifecycle of data in motion. And as we progress along our consumption transformation, we will be better equipped than ever to rapidly acquire new customers, win new workloads, and fuel the adoption of our full set of product capabilities.

Our rapid pace of innovation and ability to land high-quality customers who have the potential to consume more of our product leave me more excited than ever about the long-term opportunity to capture the lion’s share of the data streaming market. Vimeo, a leading SaaS video platform with over 260 million users, is a great example of a customer using our complete data streaming platform. Success for video platforms like Vimeo largely depends on delivering stellar user experiences, but traditional data warehousing and batch ETL processes limited their ability to see real-time customer usage, hindering timely decisions, quick pivots on products, and campaigns and adaptive user experiences without buffering. So, they turned to Confluent to enable real-time data flows that provided the visibility they lacked.

Fully managed connectors to Snowflake, S3, and others make it easy to instantly connect data through their business without the hassle of building and self-managing connectors. Stream Governance ensures data quality and security and allows Vimeo to safely scale and share data streams. And the team is looking toward Flink to enhance their streaming use cases while freeing up bandwidth across the team. With Confluent and real-time data flows, Vimeo can make quick decisions and deliver top-quality personalized experiences that drive growth and profitability.

Next, I’d like to discuss the critical role our partners play in our business and some exciting announcements in this area. Partners are essential to our strategy to expand our reach into new markets, improve sales efficiency, and complement our data streaming platform. We’re pleased to share a number of notable achievements and milestones across all three pillars of our partner ecosystem. In Q2, we announced Build with Confluent and Accelerate with Confluent, which makes it easier for our global SI partners like KPMG, Accenture, and EY to build specialized offerings as they embed data streaming into their core business.

A wide range of use cases have already been established through the Build with Confluent program, including a GenAI bot for airline customer support, fraud detection against AI-powered voice phishing, automated limit increases for credit card users, and real-time telemetry analysis for freight optimization. We’re also seeing great traction with Connect with Confluent, a technology partner program that makes it easier for partners to build data integrations with Confluent Cloud. In Q2, we crossed more than 40 technology partner-built integrations, including SAP, MongoDB, [Inaudible], and services at Google Cloud and AWS, giving us coverage across the major segments of the modern data and AI stack to help us drive consumption of Confluent. The success of Connect with Confluent has tripled the amount of data traffic from our partner integration since the start of the year.

And finally, on the CSP front, we were pleased to be recognized as Partners of the Year by both Google and Microsoft. This marks the third year in a row that Confluent won this award from Microsoft and the fifth year that we’ve been recognized by Google. Together, these recognitions underscore our highly valuable and symbiotic relationship with our cloud partners. As we discussed last quarter, data streaming plays a critical role in fueling GenAI applications with contextual and trustworthy streams of real-time data.