Release Date: December 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Couchbase Inc (NASDAQ:BASE) reported a 17% year-over-year increase in annual recurring revenue (ARR), reaching $220.3 million.
• The company added 34 new logos in Q3, up from 24 in the same quarter of the previous fiscal year.
• CAPELLA now represents 15.1% of total ARR, with a third of customers using the platform, indicating strong adoption.
• Couchbase Inc (NASDAQ:BASE) achieved its largest CAPELLA migration to date, a multi-million dollar deal with a Fortune 500 global hospitality company.
• The company demonstrated strong performance across various industries, including government, gaming, fintech, e-commerce, and more, showcasing the versatility of its platform.

Negative Points

• ARR per customer decreased to $244,000 from $246,000 last quarter and $264,000 in Q3 2024, indicating potential pricing or customer size challenges.
• Operating cash flow for the third quarter was negative $16.9 million, with a free cash flow margin of negative 33.9%.
• Gross margin decreased to 88.2% from 89.5% in the same quarter last year, partly due to the growing CAPELLA mix.
• The company faces macroeconomic headwinds, which could impact upsell and migration timelines as well as consumption trends.
• Despite strong ARR growth, revenue growth was only 13% year-over-year, suggesting a lag in revenue realization from ARR.

Q & A Highlights

• Warning! GuruFocus has detected 2 Warning Sign with BASE.

Q: How should we think about the opportunity for Q4 and how it translates into ARR and revenue? A: Matt Cain, CEO, explained that the renewal pool this year is more second-half weighted, and they executed well in Q3, which gives them confidence for Q4. They have a broad set of strategic opportunities with large enterprises making long-term decisions about their database platform, which speaks to the trust in Couchbase as a strategic partner. Greg Henry, CFO, added that Q4 is expected to be the largest quarter, with several million of precontracted ARR providing confidence. Most of what will be done will translate into revenue in Q4, but some deals might move into Q1.

Q: What are you hearing in terms of customer conversations about AI and how Couchbase fits into that blueprint? A: Matt Cain, CEO, stated that AI is a topic in nearly every customer conversation. Customers view Couchbase as a strategic platform in an AI world. Couchbase has added many services to its data platform to simplify the developer experience. The recent AI services announcement allows customers to combine structured and unstructured data, vectorize everything inside the platform, and bring models into Capella, simplifying AI development in a secure way.

Q: What is the visibility on the timeline for closing large key account deals? A: Matt Cain, CEO, mentioned that timing is a variable with large opportunities, and they focus on finding a good outcome for both customers and Couchbase. They have a broad set of strategic accounts far into their decision-making process, which gives them multiple paths to execute a great Q4. Some deals might move into the next fiscal year, but they have a strong pipeline and visibility into customer decision-making processes.

Q: Can you discuss the momentum with Capella and when it might become a larger part of ARR? A: Matt Cain, CEO, expressed that they are feeling the inflection point with Capella. A third of customers are using Capella, but it represents only 15% of ARR. Many customers start with a single application, and the percentage of ARR will grow as more applications migrate to Capella. The largest Capella migration happened in Q3, and there are more opportunities in the pipeline. The discussions and customer feedback indicate a promising future for Capella.

Q: How should we think about the conservatism in your ARR guidance? A: Greg Henry, CFO, stated that they have not changed their guidance approach. The second half, particularly Q4, was always expected to be significant due to precontracted revenue and the size of the renewal pool. They maintain discipline in pricing and discounting, ensuring long-term economics are not compromised. The guidance reflects the strategic deals and the confidence in their pipeline.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.