Couchbase Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
February 25, 2025

There are 11 speakers on the call.

Operator

Couchbase Fourth Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edward Parker, Head of Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Good afternoon, and welcome to Couchbase's fourth quarter twenty twenty five 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.

Speaker 1

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 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 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.

Speaker 2

Thanks, Edward, and good afternoon, everyone. I'm pleased to report that we ended fiscal twenty twenty five on a high note with a great Q4. We delivered fourth quarter revenue, non GAAP operating loss and ARR adjusted for in quarter FX ahead of the high end of our guidance ranges. Highlights include robust renewals and expansions and continued strong Capella adoption and consumption growth, which resulted in our highest ever quarterly net new ARR. In addition, we recorded our second quarter of positive free cash flow and our first quarter of positive non GAAP net income.

Speaker 2

I'm pleased with the operational performance from all teams across the company and the momentum in the business headed into fiscal twenty twenty six. Total ARR was $237,900,000 up 17% year over year and up 8% sequentially. Net new ARR was $17,600,000 up 14% year over year. Excluding the in quarter impact of currency fluctuations, net new ARR was $19,500,000 up 26% year over year. Revenue in Q4 was $54,900,000 up 10% year over year.

Speaker 2

We had $144,000 non GAAP operating loss in Q4. We added 44 new logos up from 34 in the fourth quarter of fiscal twenty twenty four. Capella now represents 16.2% of our total ARR and 33% of our customer base. In Q4, we saw broad strength in both our core enterprise and Capella businesses with exceptional performance across renewals and expansions. Momentum continued with Capella, driven by strong new logos and migrations, including a 7 figure conversion from a community edition customer.

Speaker 2

We continue to see solid uptake and growing consumption of Capella, which bodes well for the long term growth and durability of our business. Throughout the year, we've discussed the significant progress we've been making with a set of strategic accounts where Couchbase is emerging as a long term platform provider to power their critical applications. I'm pleased to report that we saw much of that progress come to fruition in the quarter, which contributed to our strong net new ARR performance. We now have 50 greater than 1,000,000 customers, up 11% year over year, including a growing number of customers with over $5,000,000 in ARR, as well as our second customer above the $10,000,000 ARR mark, demonstrating the commitment large enterprises are making to our developer data platform. To share some customer highlights from the quarter, we delivered strong expansions and migrations across travel and hospitality, banking, e commerce, gaming and media.

Speaker 2

In Q4, a leading global financial firm expanded with Couchbase due to the flexibility of our platform. With this expansion among the largest in Couchbase history and part of a broader database vendor consolidation initiative that includes replacing both legacy relational and competitive NoSQL technology, we will unify this customer's data across platforms with our multimodal capabilities over an expanding set of applications. Other major expansions include a global telecommunications company, which is continuing to grow their use of Couchbase across multiple teams and applications a global airline, which is increasing its use of our edge capabilities for supporting its operations to reduce flight delays and a global technology conglomerate, which is leveraging Couchbase to power its programmatic advertising systems. Turning to Capella, we won a significant expansion with the leading cruise line, which is using Capella to power its guest ID and mobile wallet application and a leading mobile game developer, which is using Capella to store its gamer data, improve scalability, reduce latency and improve throughput for one of its most popular games. We also won a significant Capella migration with the major European telecommunications and media company, which will use our platform to support its suite of identity and access management solutions used for managing digital identities, authentication and access control across a variety of digital services.

Speaker 2

We're honored by the commitment our largest customers are making with Couchbase and it's gratifying to see the increasing relevance of our platform as we meet the growing application needs across a wide range of use cases and industries. Importantly, these large strategic opportunities represent a significant portion of our pipeline and opportunity set in the new fiscal year and beyond, inclusive of the growing influence of AI. At the same time, we continue to grow our installed base. We saw notable wins across a variety of industries including consulting, cybersecurity, entertainment, industrial, travel and hospitality, and technology. These include a major gas station chain with over 1,000 locations which selected Capella to power its in store mobile kiosks because of its edge capabilities and an APAC based streaming platform which transitioned from community edition to enterprise because of its high performance cost effective storage.

Speaker 2

We also won a global leader in industrial automation and information technology, which required a database with offline first mobile capabilities and peer to peer sync for its mobile app that will be used by its maintenance, repair and operations personnel for real time alerts in order to serve up to date information for any ongoing issues that could disrupt business operations. Turning to product, as you all know, Couchbase was born to be the developer data platform for critical applications and our architectural advantages have never been more relevant than in today's AI driven world. As enterprises race to build intelligent applications, our platform uniquely unifies transactional, analytical, mobile and AI workloads into a seamless fully managed solution. This means enterprises can innovate faster, scale effortlessly and optimize costs, all while ensuring high performance from cloud to edge. With that in mind, let's dive into some of our latest advancements.

Speaker 2

This week, we announced the expansion of our analytics services to select Google Cloud regions, extending its availability beyond AWS. As the first JSON native analytics solution of its kind, it is purpose built to help developers and architects unlock real time insights from semi structured data without complex ETL or rigid schemas. Our real time JSON analytics is a key pillar of our vision for the AI app tech stack of the future, powering intelligent applications with seamless integration across workloads. By expanding to GCP, we are further empowering enterprises to analyze operational JSON data at scale, driving faster, smarter decisions. Just yesterday, we announced we are working with NVIDIA to deploy NVIDIA Inference Microservices or NIM in Capella AI model services.

Speaker 2

This will provide enterprises with a powerful solution for privately running Gen AI models. The collaboration combines GPU accelerated performance and enterprise grade security to bring LLMs closer to the data, minimizing latency and enhancing Capella's Agentiq AI and RAG capabilities, empowering organizations to operate their AI workloads. Capella AI model services with NIM provides our customers with a cost effective solution that accelerates agent delivery while maximizing resource utilization and performance. I commend our product and engineering teams on delivering breakthrough innovations that are redefining what's possible for developers and enterprises in our AI world. With Couchbase Mobile with vector search, Capella Perpetual free tier, Capella JSON Analytics, Capella IQ and now Capella AI Services, we are powering the future of AI driven applications.

Speaker 2

These are fundamental advancements that give developers control over their data and the freedom to build and deploy AI powered agents at scale from ideation to production across cloud to edge. Looking ahead, our innovation agenda is laser focused on simplifying how developers harness these capabilities, enabling them to push the boundaries of what's possible, while delivering premium application experiences without compromising on functionality, performance, operational costs or connectivity. In conclusion, I'm proud of how our teams executed in the quarter and it's especially gratifying to see the effort and progress made all fiscal year manifest in our Q4 results. Our product and engineering teams are innovating at a rapid pace and company wide, we continue to improve our operational efficiency and rigor resulting in the profitability milestones I mentioned earlier. As I look to fiscal twenty twenty six, we will continue to focus on sustained growth, driving Capella uptake, accelerating the pace of leverage in our model and further enhancing our support for Agentic and artificial intelligence use cases.

Speaker 2

As the world becomes more AI driven, our customers are focused on building the next generation of intelligent applications. To do this, they need a unified data platform that integrates seamlessly with the future application tech stack. While our core strengths performance, caching, flexibility, scale, mobility and affordability are crucial, it's our ability to unify operational AI, analytics and mobile data management on a single platform that truly sets us apart. This positions Couchbase as the ideal long term strategic partner helping enterprises tackle their data challenges and powering their most critical applications. As always, we will continue to attack hard problems driven by customer outcomes.

Speaker 2

Finally, as you all may have seen in today's eight ks filing, after eight plus years, Greg Henry will be leaving Couchbase to pursue a new opportunity. Greg joined Couchbase right around the same time I did and has been at my side every step of the way as a trusted colleague and dear friend. He's been a key part of our leadership team and has been instrumental in our journey to the public markets, overseeing the building of our world class financial organization, scaling our business, driving leverage and guiding our ongoing evolution to a consumption business. Greg's last official day is today, but he'll stay on as an advisor to the company through May 31 to ensure a seamless transition process. Bill Carey, who has been our Chief Accounting Officer since 2023 and has been with Couchbase since 2019, will serve as interim CFO starting tomorrow.

Speaker 2

We've initiated a search for Gregg's successor and I look forward to updating you when we've identified our next CFO. On behalf of everyone at Couchbase, I want to thank you, Gregg, for your dedication to the company. We're excited to see what you accomplish in your next chapter. With that, I'll now hand the call over to Greg to walk you through our financial results in more detail. Greg?

Speaker 3

Thanks, Matt, and thanks for the kind words. My sentiment is mutual. My time at Couchbase has been the most rewarding of my career, and I'm incredibly proud of everything we've accomplished as a team. We've built an incredible public company coming from a barely known startup. I leave knowing that Couchbase will continue to build value in the years to come based on all that hard work, and I look forward to what the future brings.

Speaker 3

Thanks to our customers, partners, employees, management team and Board of Directors that have supported me along the way. Now turning to our results. We had a strong finish to fiscal twenty twenty five, delivering a great quarter with all key metrics above our outlook. I'm pleased with our execution, strong renewals and expansions, momentum with Capella and operating and free cash flow margin performance. I'll now walk you through our fourth quarter and full year fiscal twenty twenty five financial results in more detail.

Speaker 3

We ended the fourth quarter with total annual recurring revenue or ARR of $237,900,000 representing 17% growth year over year and 8% sequentially. Net new ARR was $17,600,000 up 14% year over year. Like many of our peers, we experienced the impact of foreign currency fluctuations in the quarter. Relative to currency rates underpinning our Q4 and full year guidance, we delivered $239,800,000 in total ARR, up 17% year over year and 9% sequentially and above the high end of our guidance. This equates to net new ARR of $19,500,000 up 26% year over year.

Speaker 3

This represents our highest ever net new ARR number and reflects the execution of large strategic deals that we've discussed throughout the year, continued growth in Capella contribution and overall progress across industries and geographies with both Capella and Enterprise. At the end of the quarter, Capella ARR was $38,500,000 an increase of 16% from last quarter and 76% year over year. Capella now represents 16.2% of our total ARR, up from 15.1% last quarter and up from 10.7% at the end of fiscal twenty twenty four. Turning to revenue. Total revenue for the fourth quarter was $54,900,000 an increase of 10% year over year and 6% sequentially.

Speaker 3

Software revenue was $52,800,000 up 10% year over year and 7% sequentially. Professional services revenue was $2,100,000 growing 6% year over year and down 8% sequentially. For the full year, we delivered 209,500,000 in total revenue, an increase of 16% from fiscal twenty twenty four. Full year software revenue was $200,400,000 up 17% year over year. We finished the year with $9,100,000 in professional services revenue up 7% year over year.

Speaker 3

Q4 ARR per customer was $251,000 down from $273,000 in Q4 twenty twenty four and up from $244,000 in the third quarter. The year over year and sequential changes reflect the increasing mix of Capella, offset by the significant renewals and expansions of large strategic accounts in Q4. Our dollar based net retention rate or NRR was greater than 114% compared to the greater than 115% we've typically delivered since going public over three years ago. While we expect our NRR to return to historical levels in the second half of this fiscal year, given the trailing twelve month nature of this metric, we believe NRR could be below 115% until we anniversary the anomalous loss and down sell we experienced and discussed earlier in fiscal twenty twenty five. We exited the year with nine forty seven customers, an increase of 44 net new customers from last quarter.

Speaker 3

Our Capella customer count grew by 10 in the quarter. In discussing the remainder of the income statement, please note that unless otherwise stated, all references to expenses, results of operations and share count are on a non GAAP basis. In Q4, our gross margin was 89.4%. This compares to 90.4% a year ago and 88.2% last quarter. Our full year gross margin was 88.9% compared to 88.5% in fiscal twenty twenty four.

Speaker 3

Turning to expenses. Fourth quarter sales and marketing expenses were $28,300,000 or 51% of revenue. For the full year, sales and marketing expenses were $118,400,000 We are pleased with the progress we've been making in improving sales and marketing efficiency, having reduced our spend from 69% of revenue in fiscal twenty twenty two to 57% in fiscal twenty twenty five. We remain focused on driving further improvements in fiscal twenty twenty six. Q4 research and development expenses were $13,300,000 or 24% of revenue.

Speaker 3

Full year research and development expenses were $52,700,000 or 25 percent of revenue. Fourth quarter general and administrative expenses were $7,700,000 or 14% of revenue. Full year general administrative expenses were $29,600,000 also 14% of revenue. Operating loss for Q4 was $144,000 or a negative 0.3% operating margin compared to an operating loss of $4,100,000 or negative 8% operating margin a year ago. Operating loss for the full fiscal year was $14,400,000 or negative 7% operating margin compared to an operating loss of $31,300,000 or negative 17% operating margin in the prior fiscal year.

Speaker 3

Net income attributable to common stockholders for Q4 was $78,000 or $0 per share. For the full fiscal year, net loss was $10,400,000 or negative $0.2 per share. Turning to the balance sheet and cash flow statement. We ended Q4 with $147,200,000 in cash, cash equivalents and short term investments. We remain well capitalized to execute against our long term growth strategy.

Speaker 3

Our remaining performance obligations or RPO totaled $251,100,000 at the end of Q4, an increase of 4% year over year. We expect to recognize approximately 63% or $158,000,000 of total RPO as revenue over the next twelve months, representing growth of 7% year over year. As a reminder, we experienced fluctuations in our RPO balances due to a host of factors, including renewal timing as well as changes in the average contract duration. Operating cash flow for Q4 was $4,400,000 and for the full year was negative $15,800,000 Free cash flow for Q4 was $4,000,000 representing a free cash flow margin of 7.3%. This is our highest quarterly free cash flow in company history as well as our second positive quarterly free cash flow this year, indicative of the strong progress we have made towards achieving positive free cash flow.

Speaker 3

Free cash flow for the full year was negative $18,800,000 or a negative 9% free cash flow margin, up from negative 17.6% in fiscal twenty twenty four and negative 30.2% in fiscal twenty twenty three. Now, I will provide our guidance for Q1 and the full year fiscal twenty twenty six. As Matt discussed, we are entering fiscal twenty twenty six with strong momentum and a growing pipeline of large strategic opportunities. In addition, we continue to be pleased with the growth of Capella and expect migrations as well as growing consumption to continue to be significant drivers for us in the coming fiscal year, along with ongoing investments in product capabilities and strengthening our partner ecosystem. As a reminder, several dynamics that we discussed this fiscal year, including the timing and composition of our renewal pool, have been contributing to the relative strength and visibility of our ARR outlook, and we expect these dynamics to continue to play out in Q1.

Speaker 3

As an additional reminder, compared to fiscal twenty twenty five, our 2026 renewal pool is both larger and more evenly distributed between the first and second half of the year. With these factors in mind, for the first quarter of fiscal twenty twenty six, we expect total revenue in the range of $55,100,000 to $55,900,000 or year over year growth of 8% at the midpoint. We anticipate ARR in the range of $242,900,000 to $245,900,000 which represents 18% growth year over year at the midpoint. We expect a non GAAP operating loss in the range of negative $5,400,000 to negative $4,400,000 For the full year fiscal twenty twenty six, we expect total revenue in the range of $228,000,000 to $232,000,000 or year over year growth of 10% at the midpoint. We expect ARR in the range of $273,600,000 to $278,600,000 or year over year growth of 16% at the midpoint.

Speaker 3

And finally, we expect a non GAAP operating loss in the range of negative $13,400,000 to negative $8,400,000 Lastly, we remain committed to improving our efficiency and driving continued leverage in our model. While we believe that we continue to have the opportunity to deliver free cash flow breakeven this fiscal year, as we discussed during our December 2023 Analyst Day, given the more back end loaded ARR performance in fiscal twenty twenty five as well as certain timing elements, our first full year of positive free cash flow could be fiscal twenty twenty seven. However, we remain committed to driving free cash flow improvement in fiscal twenty twenty six and being operating income positive by fiscal twenty twenty seven. Finally, as this is my last earnings call with Couchbase, I want to take a moment to thank all of you listening on the call today. I've enjoyed working with you and appreciate the support over these past several years.

Speaker 3

While I will miss everything about Couchbase, I leave knowing that the company is in great hands and is set up for continued success for years to come. Thank you all. With that, Matt and I are happy to take your questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Sanjit Singh with Morgan Stanley. Please proceed with your question.

Speaker 4

Yes. Thank you for taking the questions. And Greg, it's been a pleasure working excuse me, it's been a pleasure working with you and really excited to see what your, the next chapter of your career. And I guess with that, just sort of thinking about Q4, Matt, really awesome performance on a constant currency basis. I was wondering if you could sort of unpack for us the strength in Q4.

Speaker 4

Was it a function of executing on these strategic deals that you guys have been calling out for most of the year? Was it just better execution? Was macro improving? Just a little color on the strength in Q4.

Speaker 2

Hey, Sanjay. Great to hear from you and appreciate the acknowledgment. We're certainly proud of the execution across the company. Look, the result itself is great. What gives me a lot of confidence is the balance with which we delivered it.

Speaker 2

Certainly, we've been talking about the very high healthy pipeline of these large strategic accounts where we have the opportunity to emerge as a true platform winner. A big part of the quarter was executing against several of those. We've talked about the number of customers now over 1,000,000 ARR. We crossed the $10,000,000 threshold with a second customer. Simply put, I don't think you get to those levels if you're not truly viewed as a strategic platform provider.

Speaker 2

And we're really excited to be able to talk about some of those results. But it wasn't just that. We saw strength with other expansions, Capella migrations, some excellent new logo lands in both Enterprise and Capella. We had one customer in particular that started out as a community edition that is already over the 1,000,000 ARR mark in Capella. And so I think it was really balanced execution.

Speaker 2

And I think what we've been talking about is we've been building towards this and knew we had the pipeline to do it and it's great to have put this one up quite frankly.

Speaker 4

Awesome. And then I guess a follow-up for Greg. It's a topic that I think we revisit a couple of times every year, Greg, just the delta, the spread between your revenue outlook and your ARR guidance for growth. Is that a function of more migration Just any Just any color on the spread between the ARR outlook and the revenue outlook?

Speaker 3

Yes. Thanks, Anjeet. And obviously, thanks for your comments. Yes. You hit it right in the head.

Speaker 3

There's two things that are happening. As we continue to move further in into Capella, obviously, because that is a as a service offering, our services business is starting to contract and we'll see that again coming this year. And obviously, that's in the revenue number, not in the ARR number. But the biggest part is the transition to Capella, the migrations. We did see an increase in migration in Capella this year.

Speaker 3

In fiscal twenty twenty five, we think we'll see a step up in 2026, which is driving some of that divergence. However, once we get through that, I think you'll start seeing when we get to fiscal twenty twenty seven that the growth rates of ARR and revenue will start converging. And we'll also see that manifest itself in the rule of 40. We've made tremendous progress on the bottom line as you've seen. We haven't quite got that same pickup on the top line.

Speaker 3

That should be coming in fiscal 'twenty seven.

Speaker 4

Appreciate the thoughts. Thanks.

Operator

Thank you. Our next question comes from the line of Rob Oliver with Baird. Please proceed with your question.

Speaker 2

Great.

Speaker 5

Thanks guys. I appreciate it. Greg, ditto to Sanjeet's comments. I really enjoyed working with you and wish you all the best. I guess first question for you guys is just Sanjeet asked about the macro in Q4.

Speaker 5

I'll ask about it relative to this new fiscal year. It seems that there's a lot of crosscurrents out there in the market. So, I just would be curious to hear from you guys as you look at the pipeline of opportunities this year, the renewal cohorts that you have, how you kind of factored that into your guidance and specifically on some of those renewal cohorts, obviously an opportunity to cross sell, you talked about the uptick in Capella migrations. If you could break down some more color around what you're seeing specific or what you expect to see specifically in those cohorts, that would be helpful. And then I had a quick follow-up.

Speaker 2

Hey, Rob. This is Matt. I'll start. Look, a big dynamic that we've been articulating is the pipeline of large strategic accounts and executing through those. And I think it's important to note that that's a continuing dynamic as we go forward.

Speaker 2

There are several large accounts we're still working with on the next level of expansion. And I think we've earned that right with the work that we've done to really build a differentiated platform, which has never been more relevant. So, I'd say that's very healthy. As we've articulated, when we go into certain years, renewal base can have a different look to it and we're pretty excited about the one that we're walking into this fiscal year. The size of it, quite frankly, is large and the shape is more balanced than was the case last year.

Speaker 2

So, our ability to go execute against that and drive growth is an important factor that as we look forward. I would tell you that we've never had a better pipeline of customers set up for Capella migrations and we are not shy about talking to every customer about that and figuring out the right moment for them to move either a subset of their workloads or the entirety of their estate into the Capella offering. And we're not in a hurry to do unnatural things for our customers at the same time walking them through the TCO advantages that come with Capella. And I think that's another factor that's going to drive incremental business for us. As it pertains to the buying environment, I think we maintain prudence as we think about all factors.

Speaker 2

These are very big decisions that enterprises are making and we take pride in working hard at articulating the value of our offering. I think there is a lot of attention being paid in large enterprises on spend levels. But at the same time customers have to invest in platforms that are going to unlock the next phase of applications particularly in AI. And we love how we're positioned in the world of AgenTek based applications with the scale and performance of our platform. So, I'd say those are all balanced factors that we consider when we lay out the numbers for the future year.

Speaker 5

Got it. Super helpful. Thanks, Matt. And then just one quick follow-up. I think this is the second quarter in

Speaker 6

a row or at least

Speaker 5

the last few quarters where you guys have called out meaningful community migration. And I just wanted to get a sense for, is that a function of where you guys are in your motion and being able to articulate sort of the compelling nature of kind of moving from community to you guys? Is it something about generative AI in the market? What are some of the drivers of that? And should we expect that to continue to be a driver for you guys?

Speaker 5

Thank you.

Speaker 2

Yes. Look, Rob, I think all of those can be factors. I think fundamentally, companies are evaluating investment in technology and what return are they getting on that. Data security and reliability has never been more important neither has support as people are building the next set of applications. I think with the utility that comes with Capella, the ROI decision making and somebody that may have been running Community Edition evaluating Capella can accelerate the kind of movement to a paid offering.

Speaker 2

There are other factors in mind, but we do we think that that's going to continue to be a source of new business for us along with many other avenues where we get customers started with the technology and see pretty dramatic growth as we unlock their developers' ability to build applications that much faster on a reliable platform from cloud to edge, and so on and so forth. Yes.

Speaker 3

And Rob, I'd just jump in and say that the other thing that we hear from those who are in community coming over to Capella in particular are, hey, look, when I was on community, the product worked. I didn't need support. That's what I would have been paying for. But I am willing to pay for the as a service and the management of the database. And particularly when you're talking about smaller customers that just don't have the ability to have big DBA teams and other things, they're willing to offload that and that's where we can really again further monetize the community addition group.

Speaker 5

Very helpful. Thanks guys. Appreciate it.

Speaker 3

Thank you, Rob.

Operator

Thank you. Our next question comes from the line of Jason Ader with William Blair. Please proceed with your question.

Speaker 7

Yes. Thank you. Matt, I guess, start with you. You guys have been growing steadily in the mid teens, showing nice leverage. I think a lot of people don't believe you're going to do the net new ARR that you did, so congrats on that.

Speaker 7

I don't want to take anything away from the trajectory and the history here, but what needs to happen for you guys to kind of break out of the range that you're in right now in terms of revenue growth? Like if you were to think about the next few years, what do you think needs to happen for the company to really accelerate the top line growth until, let's call it, something with a two in front of it?

Speaker 2

Look, Jason, I appreciate the comments on the quarter and the focus on the future, quite frankly. Look, I think we have all the ingredients in place and it's largely going to come down to execution. If I think fundamentally about where we sit, do we have a differentiated data platform that the next set of developers are going to rely upon for the applications they're building out And are we continuing to innovate at extremely rapid pace to make that even more differentiated? The answer is yes. And we are extremely convicted on our strategic position and the roadmap ahead of us as we continue to emerge as a winning AI native data platform.

Speaker 2

The work that we've done on the go to market side to refine our value proposition and how we articulate and open up funnel dynamics with things like perpetual free tier and articulating the value of Capella migrations. The leading indicators are all there for us to deliver on the commitments that we've made. And we continue to attract world class people in all aspects of the company. So, I am very convicted on the go forward future and it's up to us to execute against that. But if we look at, again, the leading indicators, the health of the pipeline, the build up of customers who are fundamentally understanding the value proposition of Capella and the need for developers to think differently about the future applications fact with AI, we've never been better set up to execute on our commitments.

Speaker 2

So, these things

Speaker 3

are largely in our control and rest assured we're going to do everything possible to make them happen. And Jason, if I could just add, if I go back to looking at fiscal 'twenty three, our ARR reported growth rate was 23%, fiscal 'twenty four was 25%. Yes, this year was high teens. A lot of it goes back to the loss and down sell we saw in Q2 that was sort of unexpected and having a renewal base that wasn't quite as big. Otherwise, I think we could have probably seen our way to a 20% growth rate this year.

Speaker 3

As Matt said, the renewal and the rebuy of Capella gets bigger next year, more opportunity. And so, I think that's what gives us confidence that we can return to being a 20% grower.

Speaker 7

All right. And then, Matt, just a quick follow-up on the news today. Any observations on the IBM deal today to acquire DataStax in terms of what it means for the database industry and the competitive landscape?

Speaker 2

Yes. Look, if we look over the last two days, we've seen acquisitions from two important companies in the data world, Mongo's acquisition yesterday and IBM's today. And I think it speaks to the validation of what we've been talking about, the importance of databases and the combination of analytical and operational data platforms that can serve applications in an AI world. So, again, we think it reinforces our strategic positioning and how Enerbot prices are needing to think very strategically about data platforms. And again, are excited to execute on our strategy as a standalone company where we think there's immense value to unlock in front of us.

Speaker 7

All right. And then just a final note, Greg, best of luck. It was great working with you. Hopefully, cross paths again.

Speaker 3

Absolutely, Jason. Thank you. Pleasure.

Operator

Our next question comes from the line of Mike Seacos with Needham and Company. Please proceed with your question.

Speaker 6

Great. Thanks for taking the questions here guys. And I'll start off by thanking you, Greg, for the time together and good luck on your future endeavor here. For Matt, maybe if we could just kick off, I know Capella AI Services is early days here, but can you talk to the initial customer feedback? I imagine you probably ran pilots or had this in even a handful of select customers before taking it into this private preview stage we're in today.

Speaker 6

What are customers telling you and what are their findings? And then I have a follow-up. Thank

Speaker 2

you. Hey, Mike. Yes, as you can imagine, we obsess over customer input and I would extend that to partners and other members of the ecosystem as we talk about our strategy, talk about some of the problem sets that customers and partners are facing and evaluate that against our roadmap. Quite frankly, I think what's coming out first, Mike, is that the fundamental advantage of Couchbase scale, performance, our cloud to edge architecture, our data reliability, some of the tooling that we've enabled for developers, those strengths have never been more relevant than they are today. And when you layer on what we're doing with it in AI services and bringing AI tools in a very efficient way to developers with the powerful data platform that we offer, they're starting to realize that we can be used as an even more strategic platform.

Speaker 2

And the ease at which we're doing that for developers and really bringing best of breed AI technology to highest performing data platform from cloud to edge, we're getting a lot of validation. And you can probably appreciate when we're engaging in multi year strategic discussions with some of the largest enterprises in the world, They're not just buying the technology and the Capella as a service offering that's available today. They're investing in a company to be a long term partner and as important the roadmap of future services. And so when we can talk about not just AI services that are in early preview, but some of the other roadmap items that we have ahead of us over the next many quarters, I think the result that we put up in Q4 is a huge validation of our strategic positioning on a go forward basis. So we love the feedback that we're getting.

Speaker 2

Our engineering teams are flying into the office every day more excited to work on the next set of features than I've ever seen them. And I think we are really excited about the path forward and the role that we're going to play as a data platform provider for enterprises for a long time.

Speaker 6

That's great to hear. And for the follow-up here, I think we're all aware of the benefit in Q1 last year to license based on that early renewal you guys have seen in Q4 fiscal twenty twenty four. We just wanted to get a better sense if we're talking about the size of this renewal pool, the confidence you guys have in the step up in anticipated Capella migrations this coming year. Can you provide additional detail? What gives you that confidence here in those Capella migrations?

Speaker 6

Is there additional scrubbing of pipeline that's gone into place? Are you implementing more rigorous processes? Just anything to help instill that confidence with the rest of the community? Thank you.

Speaker 2

Mike, I'll comment and then refer to Greg if he has anything to add on. I mean, look, we have every single customer from one end mapped out and have a keen understanding of where they sit from a Capella perspective, whether they're all in on Capella today, if they've started a migration, if they have a Plan one coming up, if they've done a subset of their estate. And so, I think simply put, when we obsess over that pipeline and the field teams have done an amazing job of progressing that, we just have more opportunities that are closer to ready to move to migration. And in some cases, Mike, we're being pleasantly surprised by things going faster than what customers would have previously told us. We have a major customer in the travel space that we talked about that quite frankly previously had articulated reasons why kind of couch based traditional deployments were serving them at the beginning of the year.

Speaker 2

And over the course of a few quarters, new dynamics emerge and they're solving different set of problems and we continue to articulate Capella. And we're over seven figures of Capella with an account that hadn't planned that for the year. And so I think that's one example of how fast things can go along with ones that we know about. So Mike, it's simply understanding our customers, working with them on the specifics of their estate, understanding where they are in their development lifestyle cycle with next generation applications and if there's just much more of that opportunity that's further progressed than has previously been the case. And that's a separate dynamic from accounts that are up for renewal this year where that renewal base is simply bigger than what we had to work with last year and more balanced.

Speaker 2

We talked a lot about that dynamic last year. And that often presents one of the most important compelling events where we get an uptick of growth because we're renegotiating agreements on a go forward basis. So, I'd say both those factors combined are where you're hearing the conviction come from.

Speaker 3

Yes. Mike, I'd just add echo the same thing. Look, we're further progressed. We're going to have more shots on goal, if you will, next year. We also have now we have several multimillion dollar customers that have migrated as reference customers, which is also helpful.

Speaker 3

And we've also had a few of our advocates who have embraced Capella at certain customers. They're moving to other organizations. Sometimes those organizations are already customers of Couchbase's. And in some cases, they may be new to Couchbase, but they're bringing in the, hey, I had a great experience with Couchbase and Capella, and I want to bring that into that organization. So it's all that.

Speaker 6

Terrific. Thank you.

Speaker 8

Thanks, Mike.

Operator

Thank you. Our next question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

Speaker 9

Perfect. Thank you. Congrats from me as well and Greg, all the best. I want to stay on the Capella notion. So at the moment, there's a lot of kind of converting existing customers over to Capella and that's going to be like a really multi nice multi year opportunity.

Speaker 9

Where are we on that new customer ad from? Because obviously Capela as a cloud solution should enable kind of new logo growth to accelerate. Where are we there and what are the initiatives for next year?

Speaker 3

Yes. Hey, Raimo, it's Greg. Thanks for the words, kind words there. Yes, look, we're continuing to make progress there. We feel very good about it in terms of continuing to add new logos.

Speaker 3

I think we had a very strong year. Capella continues to be the dominant new logo engine for the company. But there's obviously a lot of opportunity still out there for us. And the teams are out there and we've enabled them with things like starter packs and transition packs to get customers going in an easy, lightweight kind of way. And we're seeing some of that.

Speaker 3

That said, it will it may fluctuate from quarter to quarter, but I think the momentum and particularly the pipeline is good. And we feel good about how that new logo activity is going. And you saw overall, again, a quarter where we had I know this isn't just Capella, but we had 44 net new logos. And so we feel like we're starting to get into that rhythm of having a higher amount of regular new logo ads.

Speaker 9

Yes, perfect. Perfect. Thank you. And then if you think about that and Greg, it's now with you retiring, it's almost like a not nice to ask the question, but like if you think about the balance between growth and profitability, you kind of showed in Q4 when you went to breakeven that's achievable. Obviously, you gave guidance, but how do you if the market is recovering next year, like how do you think about that growth versus margin balance?

Speaker 9

Thank you.

Speaker 3

Yes. Thanks, Raimo. And I do need to correct one thing. I'm actually not retiring. I'm just moving on from couch base.

Speaker 3

But I'm still far too young for retirement. Look, we're trying to balance that growth and profitability measure. But as I said, I think we knew we had opportunity to become more efficient. I think we've demonstrated that both on the non GAAP up loss line as well as the free cash flow line. And but we're still making very good investments on the R and D side to make sure we remain competitive in the market for years to come, particularly on the AI front.

Speaker 3

There's been a tremendous amount of dollars energy put towards that because we think that's where the growth is going to come from. And I think that we're going to start seeing that again next year. As I was talking with Jason before, the last two prior years were the low 20s. We had a little loss and down sell this year that procured us from being a 20% grower, but we think we can be back there and the revenue is going to converge, the growth rate of revenue is going to converge with ARR and I think we're going to see some really good things on both the growth and rule of 40.

Speaker 2

Look, Ram, we're building for the long term here and I think it's our job quite frankly to find leverage in the model and we've been talking about the pride at which we're taking in demonstrating that that's going to continue on a go forward basis. Greg is right to call out the specific efficiency that we're seeing in R and D, but it spans to other parts of the organization including go to market. And I think we've had a transformational year in a lot of cases on how we're thinking about go to market with strategic accounts and balancing that with growth areas. We talked about the excitement of our new CMO that joined and the updated positioning. And then if you think about all the work we've done for developers with Capella IQ, the perpetual free tier,

Speaker 3

AI services,

Speaker 2

we think that we're going to be acquiring and expanding customers in a much more efficient way. So leverage is a big word that we use around here and I think like most great companies, we're going to figure out how to get that balance right and grow while investing wisely.

Speaker 9

Okay, perfect. Yes, makes sense. Thank you, congrats.

Speaker 2

Thanks, Ramon.

Operator

Thank you. Our next question comes from the line of Howard Ma with Guggenheim. Please proceed with your question.

Speaker 8

Thanks. Greg, it's been a pleasure and wish you the best on your next opportunity. Matt, I wanted to ask you about the in your prepared remarks, you mentioned the global financial services firm that the I believe that was an enterprise expansion. And what I wanted to ask about is, so it seems like that customer consolidated apps built on both relational databases and one or more competing NoSQL databases. And the question is, so how I guess number one is how common is this?

Speaker 8

Number two is how long did this consolidation take from start to finish? And are there more deals like this in the pipeline?

Speaker 2

Hey, Howard. I appreciate you calling that out. Look, when I talk about emerging as a strategic platform, that's no small statement. When we stand up in front of our enterprise customers and talk about the utility of our multimodal platform, we are certainly in a position to do things that quite frankly other database solutions aren't built for. The combination of operational, analytical, transactional, cloud to edge, we have taken a truly platform approach to how we've architected Couchbase and Capella and we'll continue to do so.

Speaker 2

So, this has been a big part of our value proposition. I think more and more, we're hearing from enterprises the need to pick fewer winners and drive consolidation as a kind of comprehensive data strategy is going to become so imperative in the world of AI. And so with our large accounts, this is a common discussion. I would say that the amount of it is probably increasing as we go forward on a relative basis, which I think serves our differentiation very well. To be able to carve off workloads that were once dependent on relational, do so with unstructured and semi structured data is a big part of our strategic differentiation.

Speaker 2

But yes, to have this level of expansion, Howard, this is hundreds of applications now and into the future. And when we get to these types of arrangements, companies are making a multi year bet on us as a platform at the expense of others. And so, this is a spot that is hard to earn and well worth fighting for. But to your question on are there more out there without question and I think this is a big part of how we're going to execute and continue to grow in a material way on a go forward basis. Thanks.

Speaker 2

That's really encouraging.

Speaker 8

And as a follow-up for Greg and sorry to cut you off earlier, Greg. I believe on the Capella side, correct me if I'm wrong, but contracts and the question is really around how we should think about Capella bookings versus consumption. And I believe contracts can take kind of two forms. With the migration deal, you have a large on prem deal migrating right to the cloud and that deal size should be about unchanged or it could be bigger, it could be a little smaller. But it's not going to shrink a lot versus if you start on prem and then that turns into a private marketplace deal, right, that usually grows over time.

Speaker 8

So what is the can you just help us think about like what is the right way to think about bookings versus consumption for Capella? Yes.

Speaker 3

So I think both of those are actually similar. Anybody who's going from enterprise to Capella is going to grow. I don't see any customers where they're shrinking. So it is going to grow. And you will see all of that show up for the most part in ARR immediately, right?

Speaker 3

So when it gets booked, the ARR will show up because of the way we have defined ARR, which is we take the booking value for the first twelve months and then from an ARR perspective after twelve months it will turn into pure consumption. The rev rec, however, is pure consumption right out of the gate and which is part of the reason why it's creating this dislocation on the ARR and the revenue growth rate, which is why we again have tried to keep people focused on the ARR because it's the best near term metric of what's happening in the business and the revenue will come up behind it, which is why I tried to articulate that we think by fiscal twenty twenty seven, you'll start seeing those growth rates sort of come closer, much closer together. Does that answer it for you, Howard? I'm sorry to ask another follow-up, but can I just

Speaker 2

ask you this way?

Speaker 8

Are Capella bookings, the growth rate in bookings and consumption, are those both accelerating?

Speaker 3

Again, the growth rate of consumption is 100% accelerating. I don't quite honestly focus on bookings as much. I focus on what we're delivering on ARR and what the revenue is going to come behind it from a consumption perspective. But rest assured that the growth of consumption year over year, quarter over quarter continues to grow

Speaker 8

in Capella. Got it. Thank you. That's super helpful. Thank you.

Operator

Thank you. Our next question comes from the line of Rudy Kessinger with D. A. Davidson. Please proceed with your question.

Speaker 10

Hey, guys. Thanks for taking my questions. Congrats on hitting the ARR for the quarter. And Greg, certainly been a pleasure working with you and best of luck on what's next. I'd like to start maybe just on this initial 26 ARR guide, just curious about the guidance philosophy that went into it as compared to the initial fiscal twenty twenty five ARR guide, just your assumptions around pipeline conversion rates, renewals, expansions, new logos, etcetera.

Speaker 10

Is it should we think of it as roughly similar to the guidance philosophy used last year or anything more conservative or different?

Speaker 3

I think it's relatively the same as how we do it, Rudy. We don't sort of alter our guidance philosophy materially unless there's specific known things and when we're talking about a full year. We look at the renewal pool, our ability to upsell migration conversions. I think if anything, as I mentioned earlier, I think we've seen a step up in migrations the last couple of years as we're continuing to move through our Capella journey. I think that's one thing that we would expect to happen, a slightly higher migration conversion next year.

Speaker 3

But just in terms of overall guidance philosophy, nothing has changed with how we sort of come up with that for the year.

Speaker 10

Okay. And then obviously, as you guys have messaged prior to this and as evidenced by the Q1 ARR guide, it certainly seems like it's going to be a more balanced year. But could you talk about maybe just a bit more about the linearity that we should expect on ARR kind of one half versus second half or kind of Q1, Q2 and Q3 sequential and whatnot?

Speaker 3

Yes. So if you go back to fiscal 'twenty three and 'twenty four, we were kind of like forty percent first half, sixty percent second half from an ARR. This past year, as we knew, was going to be more back end loaded. We are more like thirty percent first half, 60%, seventy % second half. I think what you're going to find will probably be somewhere within that range, but more balanced for the year.

Speaker 3

That's how to think about it. But it's not 70% in the second half like we did last year.

Speaker 10

Got it. That's helpful. Okay. Thanks, guys.

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Earnings Conference Call
Couchbase Q4 2025
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