Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Annual recurring revenue (ARR) reached $214 million, up 18% year-over-year and 19% in constant currency.
- Revenue for Q2 was $51.6 million, up 20% year-over-year and above the high end of guidance.
- Added 62 net new logos, a significant increase from previous quarters.
- Capella now represents 31% of the customer base and 13.5% of total ARR, both up two points sequentially.
- Strong progress in operational efficiency, with a Rule of 40 score improving by 14 points year-over-year.
Negative Points
- Non-GAAP operating loss in Q2 was $4.1 million, representing a negative operating margin of 8%.
- Higher level of customer loss and down-sell than anticipated, impacting ARR performance.
- ARR per customer decreased to $246,000, down from $287,000 in the previous quarter.
- Free cash flow was negative $5.9 million for the quarter.
- Q2 results were affected by unexpected churn and down-sell from a few large customers.
Q & A Highlights
Q: Can you elaborate on the unexpected churn and downsell mentioned in the call?
A: Greg Henry, CFO: There was no commonality among the churn and downsell instances. One significant loss was due to a customer ceasing operations following an acquisition. Despite these setbacks, we had one of our best gross ARR quarters in company history, offset by higher-than-expected churn and downsell.
Q: What drove the strong new customer additions this quarter?
A: Matthew Cain, CEO: The 62 net new logo additions were driven by strategic investments in our go-to-market initiatives, including increased focus on strategic accounts and partner motions. Partners, including hyperscalers and ISVs, played a significant role in extending our reach and relevance with strategic customers.
Q: Can you provide more details on the Capella net new ARR growth?
A: Matthew Cain, CEO: Capella's net new ARR more than doubled sequentially, driven by a combination of new customer acquisitions, migrations, and the largest Capella land in our history. Capella now represents 31% of our customer base and 13.5% of our total ARR.
Q: How do you view the competitive landscape with hyperscalers in the AI space?
A: Matthew Cain, CEO: We see ourselves as a strategic partner for enterprise applications, offering unique capabilities like hybrid cloud and edge deployments that hyperscalers don't provide. While we compete with them, we also partner with hyperscalers to deploy Capella and leverage their services.
Q: What gives you confidence in achieving your full-year ARR guidance despite the challenges in the first half?
A: Matthew Cain, CEO: We have a very predictable enterprise model with strong renewal and expansion rates. Additionally, we have a robust pipeline of strategic accounts and contracted ARR set to start in Q4, which provides strong visibility and confidence in our full-year targets.
Q: Can you explain the impact of contracted ARR on your Q4 outlook?
A: Gregory Henry, CFO: We have a larger-than-normal amount of contracted ARR set to start in Q4, contributing to our strong second-half visibility. This contracted ARR is from multiyear deals signed in previous quarters, which will significantly impact our Q4 ARR.
Q: What are the drivers behind the down-sell instances?
A: Matthew Cain, CEO: The down-sell instances were primarily due to cost pressures within specific accounts where we were not as strategically deployed. These were isolated cases and not indicative of a broader trend.
Q: How are you managing expense discipline while driving growth?
A: Matthew Cain, CEO: We are focusing on increasing efficiency across our operations. Our innovation team is delivering more value with less spend, and our go-to-market teams are becoming more sophisticated in finding and converting new customer prospects. This approach allows us to drive growth while maintaining expense discipline.
Q: What is the role of partners in your go-to-market strategy?
A: Matthew Cain, CEO: Partners are a key component of our go-to-market strategy, extending our reach and relevance with strategic customers. We work with a range of partners, including hyperscalers, service providers, and ISVs, to unlock new opportunities and drive growth.
Q: Can you provide more details on the strategic accounts mentioned for the second half?
A: Matthew Cain, CEO: We have a robust pipeline of strategic accounts, many of which are seven-figure ARR opportunities. These accounts are multiyear, highly strategic engagements that can significantly impact our ARR growth. We are making great progress in customer negotiations and strategic planning with these accounts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
