Ladies and gentlemen, thank you for standing by, and welcome to the Couchbase's Second Quarter 2022 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Edward Parker, Head of Investor Relations. Thank you. Please go ahead. .

Good afternoon, and welcome to Couchbase's Second Quarter 2022 Earnings Call. We will be discussing the results announced in our press release issued after the market closed today. With me are Couchbase's 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 or 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 material risks and other important factors that could affect our actual results, please refer to the risks discussed in today's press release, our final prospectus under Rule 424(b) filed with the Securities and Exchange Commission on July 22, 2021, our quarterly report on Form 10-Q for the quarter ended April 30, 2021, to be filed with the SEC and our other periodic filings 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 release and final IPO prospectus, which are available on our Investor Relations website..

With that, let me turn the call over to Matt. .

Thank you, Edward, and good afternoon, everyone. Thank you all for joining us on our first earnings call as a public company. During today's call, Greg and I will provide details on our second quarter results as well as third quarter and full year guidance..

Let's kick off with a few highlights on our Q2 financial results. Our mission is to empower enterprises with the ability to build, deploy and maintain their most mission-critical applications, by delivering the world's most-scalable, performant and flexible modern database.

I'm pleased to report that we had a very strong quarter with Q2 revenue coming in at $29.7 million, which was up 18% year-over-year. Total annual recurring revenue, or ARR, was $115.2 million, which was up 20% year-over-year.

We saw broad-based strength across our enterprise customer base, including increasing big deal momentum as well as a strengthening pipeline..

Our remaining performance obligations, or RPO, grew a very strong 47% year-over-year. Our gross margin remains best in class at 88.3%. I'm proud of these results and everything that the Couchbase team has achieved, especially in light of the challenging conditions as a result of the COVID pandemic over the past 1.5 years. .

I would like to take a second to acknowledge our employees and partners for their resiliency and dedication to serve and support our customers during these unprecedented times. Our people are our greatest strength. And as a team, we've invested thousands of people years into our platform, our services and everything we do to make our customers win.

It's been a lot of hard work. I'm proud of what we've accomplished and excited about what we will achieve in the months and years to come..

For many investors and analysts dialed in, we've had the pleasure of getting to know you over the years. But some of you may be new to the Couchbase story. To that end, in case you're not familiar, I wanted to take some extra time to walk through who we are and what we do.

4.5 years ago, I got a call from one of the lead investors at Accel, and he said, "Matt, I want to talk to you about maybe the most important company that you might not have heard of." I have never forgotten that introduction; and in some ways, it has never been more true now than ever before..

While you have all clearly heard of Couchbase, you still may not be aware of how prevalent we are in your day-to-day life. Let me give you some perspective on what this means. Imagine a typical day. You wake up. You check some carrier notifications on your mobile phone before dialing into a video conference meeting you have mid-morning.

You then check your personal credit score, reflecting your credit card application before heading out to meet a colleague for lunch. You decide to pick up the tab using an online payment app, knowing you'll expense it later through your corporate expense system. Back at the office, you plan a firm-wide online virtual town hall..

Before you call it a day, you get online and search for a used car for your graduating senior before shopping for a wedding anniversary gift for your spouse. On your way home, you check your professional social media network, looking for candidates and prospects. After dinner, you turn on the TV and you stream your favorite show. .

While using a multitude of applications like these on any given day may seem ordinary, if not mundane, fully immersive, highly interactive and always available applications have become essential, if not, critical in our personal and professional lives.

Every one of these companies providing these services has digital transformation at the core of its strategy. And these applications would not be possible without the power of the Couchbase platform. Simply put, Couchbase is providing the modern for enterprise applications..

The opportunity is one of the largest in enterprise software. Based on data from IDC, we estimate that the database market will be worth $62 billion by 2024, and we are quite intentional in saying that our addressable market comprises both relational and NoSQL technology.

This is not to downplay the tremendous success that NoSQL has seen today in net new applications but to emphasize that we are in the very early innings of what will be a generational transition as application and database platforms migrate from legacy relational systems to a new modern type of database.

We believe emphatically that Couchbase was built for this moment..

Let me describe in a bit more detail how Couchbase is uniquely underpinning the modern application. As many of you know, traditional relational databases were designed to facilitate a business transaction, a purchase order, an account transfer, an inventory update.

But knowing how rich and immersive modern applications have now become, let's consider what it means for the database..

For example, planning and booking a trip online ultimately culminates in a transaction, buying plane tickets and reserving a hotel room, but only after a multitude of events from price shopping to exploring reviews to searching for dates and availability.

We call these events interactions, and these interactions are exploding in volume driven by the increasingly personalized and dynamic applications they support. It's the culmination of these interactions, which ultimately defines the transaction, the moment when you click reserve or purchase.

But the reality is that moment is much more than a transaction. It's an experience. And the quality of the experience depends on how successful a particular application is at obtaining the specific good or service you're in pursuit of. .

In the legacy relational world, the user experience was isolated to a single event based on highly structured data. In the modern world, each transaction is powered by a large number of interactions made up of both structured and unstructured data.

As these interactions become increasingly data-driven and dynamic, the ratio of transactions to interactions and the interdependencies across a growing number of applications and data sources continues to climb, often by orders of magnitude..

Some of our more complex deployments have our existing customers executing thousands of interactions or even hundreds of thousands of interactions per single transaction. As relational technology failed to keep up with this new dynamic, NoSQL technology was created to accommodate this deluge of unstructured data..

However, while enterprises have the desire to build modern applications, unencumbered by the legacy of relational technology, enterprise requirements demand that applications operate a degree of performance, scale and reliability across a wide spectrum of deployment and consumption modalities that other NoSQL solutions can't provide. .

We built Couchbase specifically to meet this enterprise challenge, a database purpose-built to enable accelerated-digital transformation, a database that uniquely combines the flexibility of NoSQL with business-critical attributes as first principles, a database that empowers modern application design but leverages the existing and ubiquitous knowledge of SQL.

Simply put, Couchbase has the scalability and flexibility necessary to accommodate the constant growth in data volume and variety while architected to run anywhere. From cloud to on-prem, from data center to edge and to do all of these things with uncompromising performance but in an approachable and familiar way..

This is where Couchbase Server 7, our newest product innovation released in Q2, further sets us apart from the competition. Couchbase Server 7 bridges the best aspects of relational databases like distributed SQL transactions with the flexibility of a modern database.

Like I mentioned, there is an urgent need for a database platform that can support both developing and deploying new applications and also modernizing and upgrading existing ones..

Couchbase Server 7 eliminates the key friction points that have kept enterprises from modernizing their relational-based applications. This unlocks an entirely new portion of the very large relational database market for us because we can now own the transactions in addition to all the interactions where we have always been strong.

In fact, the majority of our customers are now using Couchbase as a source of truth, which means that we are a fully flexible persistent data store, a library of information that aggregates data from a variety of sources on which applications rely to enable a wide range of capabilities and services.

Looking forward, as our customers continue to leverage more and more transaction services with Couchbase, we are becoming the system of record for a growing number of enterprise applications..

By having one unified platform that can take on modernizing the legacy relational applications and the new modern applications, enterprises can confidently accelerate strategic initiatives such as more quickly moving business-critical applications into the cloud, improving application flexibility and increasing developer agility.

I want to expand on these capabilities by quickly summarizing the 5 ways that Couchbase is uniquely architected to enable us to offer customer benefits that no one else in the market can..

First, Couchbase is an all-in-one platform built on an in-memory shared-nothing architecture, which can serve as a cache, a source of truth and a system of record. We're extensible and multimodal, which obviates the need for point solutions and silo deployments..

Second, we are engineered for massive data volumes and scale, operating at sub-millisecond performance and petabyte scale, often an order of magnitude ahead of our competitors.

We're cloud native, which means that compute, network and storage resources can be scaled independently of one another on a workload-by-workload basis, so application teams can determine which underlying resources they need to optimize for their application development..

Third, we empower developer agility and flexibility by bringing the power of NoSQL's modern approach to data management with the usability of time-honored and ubiquitous skill sets through unique SQL-based interface as well as full tech search.

Developers don't need to learn a new language to use Couchbase and enterprises can leverage existing skill sets..

Fourth, we offer enterprise-grade operational effectiveness and security so that data is protected through cross data center replication while ensuring transactional consistency and best-in-class scalability.

And fifth, we can be deployed flexibly in any environment from multicloud, hybrid cloud, edge, on-prem and are fully managed as a service offering..

Let me share a few specific examples of how our customers are using Couchbase to power their most important applications, including some new customer wins and renewals from the quarter.

Amadeus needed to deliver travel search results at lightning speed, 24/7 that contained real-time route and seat availability information matched to the personalized profile of the traveler. They rely on Couchbase for performance, scalability and availability to handle 20 million personalized search operations per second at sub-millisecond latencies.

We've also helped give them greater developer agility so they can spend more time helping customers and innovating more freely for things like merchandising, new distribution capability and loyalty. Couchbase is used in multiple lines of Amadeus' businesses, deployed in several public and private clouds..

Pfizer has been on a modernization journey. They selected Couchbase to power their platform for health applications called Newton because our modern database delivered on flexibility. Their application developers can easily update, modify and utilize patient data.

For them, Couchbase was simple to deploy on the AWS cloud, easily supporting dozens of applications and providing the flexible and robust indexing Pfizer needs for Newton's reporting application..

In Q2, the Slovak IT company, PosAm, a member of Deutsche Telekom Group adopted Couchbase Cloud on Azure to gain better performance for their city parking system, ParkDots. ParkDots modernizes the customer experience of finding, paying for and extending a parking spot via their mobile device.

For municipalities, they can monitor the occupancy of parking spaces, manage residential parking, control the eligibility of parking and integrate, for example, with the payment or information systems of a given city..

developer-controlled dynamic profiles, real-time updates across distributed systems, and consumption over multiple web and mobile interfaces. This is what modern applications will continue to look like..

A large financial services company that has been undergoing modernization efforts expanded with us in Q2 to migrate and power a very strategic set of applications that are used for marketing purposes.

The applications deliver marketing campaigns and promotions to and on behalf of the company's global merchants, including more than 10 million merchants in the U.S. alone. Given their global nature, these applications require 24 hours, 7 day a week, 365 day a year uptime.

And with Couchbase, they can efficiently scale and support the exponential increase in offers. They have benefited from both reduced infrastructure costs and increased application agility delivered by our modern database.

Of note, this was the biggest TCV deal in company history, and we are proud to be such a strategic and trusted partner to this customer..

Another win in the quarter was Northwestern University's catalyst lab, which selected Couchbase as part of a broader tech effort to reduce chronic disease risk factors by optimizing innovative, technology-supportive interventions.

By utilizing health promotion list, wearable devices and mobile applications, they design, develop and test their interventions to promote weight loss, multiple healthy diet and physical activity changes and smoking cessation via personalized mobile experiences for the wearer..

Now let me touch on multiple growth initiatives we are pursuing to capture more opportunities. First, we are focused on acquiring new customers. We are proud to count more than 30% of the Fortune 100 as customers but clearly have an opportunity to grow this number meaningfully.

In a two-pronged approach, we leverage our enterprise-class direct sales force to pursue new logos, while we continue to invest in developer-focused initiatives.

This allows us to drive top-down demand through enterprise architects, line of business owners and CIOs as well as drive bottom-up demand directly with software developers that build the applications..

These 2 personas, the enterprise architects and the application developers are both first-class citizens when it comes to building enterprise applications, but it can't be overstated how different each of them are.

Consider enterprise requirements on the one hand, which include high performance, scalability and reliability; and developer requirements on the other hand, which include agility, flexibility and ease of use..

Couchbase has uniquely served the needs of both of these personas on a single platform without sacrificing the requirements of one versus the other. And that is tremendously important as we think about capitalizing on the enterprise opportunity.

As such, our go-to-market motion features a top-down sell-to motion in concert with a bottoms-up buy-from motion, powering a flywheel we are using to drive sustainable and durable growth..

Second, we are continuing to build out our ecosystem of cloud service providers, systems integrators and ISV partners, which serve as a powerful go-to-market force multiplier for Couchbase.

For example, we saw several exciting new partner sign-ups in the quarter, including Virtusa Corporation, which is focused on providing digital business strategy, digital engineering, and information technology services and solutions to its G2K customer base across a wide variety of industries..

Additionally, we were pleased to announce during the quarter that Couchbase is the high-performance persistent data store underlying Infosys' EPOCH 4 digital supply chain solution. Overall, we are seeing a growing percentage of deals that are partner sourced and partner assisted, and we expect this to continue to grow..

Third, we are tied to application growth. When our customers' footprint for modern application grows, we grow. We see this both with expansion of existing applications as well as the growth in net new applications. We see this as a long and enduring trend as enterprises are undergoing massive application modernization in the months and years to come..

Fourth, as a robust end-to-end platform with a full suite of enterprise features ranging from security and data protection, data analytics, multimodal support and eventing, all of which are key underpinnings of modern applications that deliver extremely personalized and delightful experiences to customers.

This gives us substantial opportunities to cross sell new capabilities and features to customers who are modernizing legacy applications and building net new modern applications..

And fifth, building upon our current virtual private cloud offering, we expect forthcoming enhancements to our cloud offering in the second half to be a major growth driver as enterprises increasingly look to offload the management and tuning of database systems so they can fully focus on the applications that run their business.

It will also allow customers to develop their applications with greater speed and agility. Furthermore, these new innovations will enhance one of the core value propositions of Couchbase, the ability to enable enterprises to leverage our modern database in whatever deployment and consumption model that the business requires..

We've invested an enormous amount of time into this offering, and we're extremely pleased with the customer feedback we've received thus far. Needless to say, we have very high ambitions for our as-a-service portfolio..

Taken together, we believe we have the potential to not only continue our land and expand motion but drive a land and explode motion as we continue to serve some of the largest corporations in the world. In conclusion, we are thrilled to have recently joined the public markets and could not be more excited about the opportunity in front of us..

We believe data is at the heart of the enterprise. Enterprises use data to power modern applications that delight us as customers and improve the world as we know it. This is how software is enhancing the way we live, work and play, and the rate of change continues to accelerate.

We believe that our modern database will be the bedrock underneath these new applications, unleashing and empowering the experiences that ultimately change our lives and disrupt industries for years to come.

We know we have a long way to go and much work to do, but we're ambitious and excited and are building a business based on the assumption that opportunities like this don't come around very often..

The current market is based on technology that is 4 decades old and for good reason. The relational model has served companies well, but we are looking to the next 4 decades and believe our technology and strategy offers a compelling solution for our businesses and partners around the world..

We wouldn't have this opportunity without the extraordinary team we have in place as well as the core values that guide us in what we do every single day. At Couchbase, we will always act with uncompromising integrity. We attack hard problems driven by what's best for our customers.

We play to win together, and we work to make tomorrow better than today. And perhaps our most single important value is to be a good human, always..

I will now turn the call over to Greg to talk about our financial results.

Greg?.

Thanks, Matt, and thanks again to everyone for joining us today. We are very excited to be embarking on this next phase of growth as a public company. I will go over our second fiscal quarter financial results in detail. I will also provide some background on our financial model as this is our first quarter as a public company.

Then I will move on to guidance for the third fiscal quarter and the full year fiscal 2022..

Total revenue in Q2 was $29.7 million, up 18% year-over-year and up 6% from the prior quarter. Subscription revenue was $28 million, up 19% year-over-year and 6% from the prior quarter. Subscription revenue consists primarily of time-based (sic) [ term-based ] licenses to our database platform sold in conjunction with post-contract support..

The noncancelable terms of our subscription arrangements typically range from 1 to 3 years and are typically paid upfront on an annual basis.

We are pleased with our subscription revenue performance in the quarter, which reflected broad-based demand for our database platform for both existing and new customers as well as strong big deal momentum, modestly offset by lower expansions from some of our large customers in COVID-impacted industries.

However, our overall expansion rates remain healthy..

Professional services revenue in Q2 was $1.7 million, up 10% year-over-year. Because our software is often implemented in large scale and often complex enterprise application environment, our revenue experiences a degree of volatility due to the timing of the initiation of certain projects.

In fact, we saw this dynamic play out this quarter as several very large deals renewed with significant upsell earlier than expected, contributing upside to our RPO but did so with project implementation timing later than we had expected and thus, start dates for revenue and billings later than we had originally forecasted.

Later start dates can impact near-term revenue and billings performance as it did this quarter but are still very healthy for our long-term business..

In order to provide investors with better transparency into our bookings as well as provide a framework that aligns how we plan, forecast and manage our business internally, we are providing annual recurring revenue, or ARR, which represents the annualized recurring revenue at the end of the period that is currently contracted and committed over the forward 12-month period..

We believe ARR best represents our business performance by accounting for timing variability among our customers' implementation times. In Q2, our ARR was $115.2 million, up 20% from the same period a year ago. This represents strong growth through the aforementioned healthy demand for our database offerings.

As Matt noted, we are pleased with our big deal momentum, which we believe is indicative of the increasing size, scope and importance of Couchbase as a critical infrastructure layer underpinning modern enterprise applications..

In fact, one of our early renewals in the quarter has resulted in the largest deal in the company's history and is contracted to eventually be our second $5 million-plus ARR customer by the end of their contract. This big deal activity was captured in our RPO performance in the quarter, which grew 47% year-over-year to $118.9 million.

Overall customer count was 558 in Q2, up from 549 in Q1 and 522 in the year ago quarter. We continue to be focused on adding new enterprise customers while expanding existing customers, which is reflected in our land and explode go-to-market strategy..

As we are focused on serving the world's largest organizations, let me provide some color on our ARR per customer performance in the quarter, which was $206,000, up from $184,000 from the last year-ago period based on strong expansion within our customer base as well as larger initial lands.

Our dollar-based net retention rate continues to be greater than 115%. In discussing the remainder of the income statement, please note that unless otherwise noted, all references to our expenses, operating results and share count are on a non-GAAP basis..

Our gross margin profile is strong, and that has allowed us to be very intentional and purposeful on where we invest our capital. In Q2, our gross margin was 88.3%. This compares to gross margin of 89.5% a year ago and 88.0% last quarter.

The modest year-over-year decrease in our gross margin was impacted in part by initial and ongoing investments in our as-a-service offering. We have a long-term gross margin target to remain above 80% with our trajectory somewhat contingent on the rate of uptake of our growing as-a-service offering..

Turning to expenses. Our sales and marketing expenses for Q2 were $21.6 million or 73% of total revenue compared to $16.1 million or 64% as a percent of revenue a year ago.

We've made significant investments in sales and marketing throughout fiscal 2021 and the first half of 2022 and expect to invest aggressively to grow our quota-carrying headcount focused on expanding our market reach..

Research and development expenses for Q2 were $12.1 million or 41% of revenue compared to $8.8 million and 35% a year ago. We have invested purposely and aggressively in product engineering.

Specifically, we continue to invest in our as-a-service offering and core platform development; but over the long term, we expect the percent of revenue to decrease as we scale..

General and administrative expenses for Q2 were $4.6 million or 16% of revenue compared to $2.8 million and 11% a year ago. On a dollar basis, the growth in G&A was mainly a result of expenses incurred in connection with our initial public offering.

We expect general and administrative expenses to increase in fiscal year 2022 but to decrease as a percentage of revenue as we continue to scale our operations over time..

Non-GAAP operating loss for Q2 was negative $12 million or a negative 40% operating margin compared to a negative $5.2 million or negative 21% operating margin in the year-ago quarter. The result was better than our expectation and was driven by better-than-expected revenue and our ability to manage spend effectively..

Non-GAAP net loss attributable to common stockholders for Q2 was negative $13.9 million or negative $1.54 per share. As we continue to scale the business, we believe we have a significant opportunity to gain leverage..

Turning to the balance sheet and cash flow statement. We ended Q2 with $253.6 million in cash, cash equivalents and short-term investments. Our net proceeds from the IPO were $214.9 million, net of our underwriters' discount and commissions..

Our remaining performance obligations, or RPO, totaled approximately $118.9 million, up 47% from $80.8 million last year and up 18% from $100.7 million from the prior quarter. We expect to recognize approximately 62% or $74.1 million of the total RPO as revenue over the next 12 months.

Operating cash flow was negative $16 million compared to negative $13.3 million a year ago. Free cash flow was also negative $16 million or negative 54% free cash flow margin compared to negative $14.1 million and a negative 56% free cash flow margin a year ago..

I will now conclude the call by providing guidance for Q3 and full year fiscal 2022. We continue to see strong business momentum and elevated database infrastructure migration activity across our industry, and our pipeline momentum is strong.

That said, our guidance assumes some continued uncertainty in industries impacted by COVID-19 as well as some modest headwinds to revenue as a result of changes in project implementation timing with respect to several large deals that renewed early in the quarter.

Clearly, a significant variation from this assumption would cause us to modify our guidance higher or lower..

For the third quarter of fiscal 2022, we expect total revenue in the range of $29.3 million to $29.5 million, therefore, a year-over-year growth rate of 15% at the midpoint. We anticipate ARR in the range of $117.9 million to $118.1 million, which represents 16% growth at the midpoint.

We expect a non-GAAP operating loss in the range of negative $14.3 million to negative $14.1 million..

For the full year fiscal 2022, we expect total revenue in the range of $120.8 million to $121.2 million, therefore, a year-over-year growth rate of 17% at the midpoint. We expect ARR in the range of $127.4 million to $127.6 million or 18% at the midpoint.

And finally, we expect a non-GAAP operating loss in the range of negative $48.2 million to negative $47.8 million..

With that, Matt and I are happy to take any of your questions.

Operator?.

[Operator Instructions].

And our first question comes from the line of Kash Rangan from Goldman Sachs. .

Congratulations on your first quarter as a public company. I was curious to get your thoughts on the front end of the pipeline and your plans to grow your sales capacity, direct sales or partnerships to be able to capitalize on the pipeline growth ahead. That will be for me. Congratulations. .

Great, Kash. Thanks for the question. We appreciate it. Look, I'll comment directly, and then I'll allow Greg to pile on. I think as we've talked about before, we maintain a very scientific go-to-market model inclusive of pipeline and capacity to execute against that pipeline.

Obviously, we're focused on demand that we're going to generate directly and that which we're now augmenting through our broader partner ecosystem.

Knowing that it can take some time to work through pipeline, we take a multi-quarter view and understanding opportunities for expansion, new logos and even down to a product level, specifically with cloud..

Generally speaking, we feel very good about the leading indicators from a pipeline perspective.

We've been maniacally focused on generating that even with some of the aforementioned challenges in the economy but feel good about the pipeline in front of us, everything from big deals to net new opportunities and how those are progressing through the sales stages that are really important to us..

As we think about sales capacity, and Greg talked about the investments that we're making there, I think it's also important to point out that we take a very balanced view when we think about field capacity.

So it's not just quota carrying reps but all of the resources to ensure that they're successful, everything from SEs to professional services teams to customer success and many others that are there to execute on our business model and continue to generate results as we go forward..

So again, we feel very positive about it. We'll continue to stay focused on it. It's something that is core to how we think about running the business. .

And Kash, I would just add, you've obviously seen the investments in sales and marketing. Look, same -- we're focused on adding rep capacity, building our partner and BD channel, which we have been expanding geographically.

So we're making some investments in Asia Pacific specifically, which is a nascent market for us but one of the biggest opportunities we have; and then growing our customer account -- customer success team. As we have these larger and more expansive deals, we're going to need more resources there. So that's where our focus is. .

Got it. And Matt, if I could, just a quick follow-up.

Can you talk about the replacement opportunity with traditional RDBMSs out there? At what stage of readiness is that market ready to adopt solutions such as Couchbase?.

Yes. Kash, it's a great question. And you've heard us declare that we are the modern database for enterprise applications.

We believe fundamentally that enterprises that are executing on digital transformation need to build applications that are replatformed off legacy technologies while also combining net new capabilities that require a fundamentally different database..

We were extremely excited to bring our 7.0 release to market, which I think really demonstrates how, from an architectural perspective, we are continuing to expand our database capability to even further simplify the roll-off of applications from relational systems and put the power back in the hands of developers that need to leverage those capabilities but stitch it together with the modern aspects of our flexible data schema and distributed application support capabilities, combining things like distributed asset-based transactions.

And so really thinking through from what is it that a modern application is requiring in the enterprise and how do we enable that with our platform..

All of our customers are thinking through their long-term database strategy.

And as we position ourselves as both the source of truth and eventual system of record, I think when you hear us talk about the largest deals we've ever done, those are customers that are investing in us as a true modern platform for future application needs, which, by definition, is a combination of replatforming and net new capabilities. .

Our next question comes from the line of Raimo Lenschow from Barclays. .

Congrats on the first public quarter. I just had more like a longer-term leading question. Like if I look at your growth at the moment, it sounds -- it's really healthy. But I would assume, given the opportunity set, there is more there.

Can you talk a little bit about the drivers that kind of might just kind of help us on the reacceleration here?.

Yes. Raimo, this is Matt. Look, we don't believe that our current growth is indicative of our long-term opportunity. And we've talked about before that we take great pride in solving the hardest problems first. So fundamentally, we believe we have the right database for enterprise applications, and we continue to build out our capability..

Look, if we look at our growth rates that we've demonstrated before the pandemic in our enterprise model, we were growing over 30%. We faced some headwinds that we're working through, primarily through some distressed industries and are very proud of how we're showing up as business partners in working with them..

Those industries are going to come back, and we believe they're going to come back better and bigger than ever before and even more dependent on data and next-generation applications to change user experiences, which is right in our wheelhouse.

And as we think about that customer base, I'm very proud of what the team has done to maintain those and set up for very long, mutually beneficial relationships..

On top of that, if you think about our enterprise motion, we have direct sales teams spread out around the world, who are sitting alongside enterprise development teams, application developers, enterprise architects, really understanding big projects for their mission-critical, business-critical applications..

That's been a little bit disrupted, as you can imagine, with the dynamic in the last 1.5 years. We believe that's going to come back, and Greg can talk about some of the sales efficiency that we're seeing, which is headed in the right direction..

Now that's all before, Raimo, we layer on the additional market opportunities with things like 7.0 and the material replatforming of legacy applications. We believe that, that dialogue continues to accelerate in large opportunities.

We have only scratched the surface with our managed offering and the portfolio that we have in market today and are excited about being able to talk about the pretty dramatic expansion that we're going to have with that part of our product set in the upcoming months..

So look, we think there's a lot of opportunities for growth, the ones I mentioned, along with things like continued geographic expansion, the work that we're doing with partners, ISVs, system integrators and the like. We like to say we have a lot of lines in the water and are very excited about the future.

But fundamentally, it's because the foundation that we have in place underpinned by core architectural differentiation of the product that, simply put, we've been built to do things that other databases aren't. .

Yes. Okay. Perfect. That makes a lot of sense. And then the one question, Greg, you will get on guidance is like if I look at the ARR beat, it didn't follow through on guidance.

Can you just talk a little bit about the moving pieces there?.

Yes, sure, Raimo. Yes. Look, first of all, we feel great about the quarter and how we over deliver on ARR, great deals. We talked about a couple of large early renewals we have with significant expansion, including the largest deal in company history, a great new logo out of Asia Pacific, one of the larger ones we've done..

Look, we feel very comfortable with our guidance on how we've laid this out in terms of what we expect to be able to deliver in Q3. We obviously are working hard to not only deliver that but overachieve that.

But again, we feel very good about the guidance and how we've laid this out and how we think the business is going to perform for Q3 and the rest of the year. .

Our next question comes from the line of Matt Hedberg from RBC Capital Markets. .

Great. Congrats on the quarter here. Matt, I'm going to start with you. You've obviously -- you spent a lot of time on the call today talking about the product investments like Couchbase Server 7 and your as-a-service push, including bundled infrastructure.

And you've always been good with your sell-to motion, but you're obviously talking about now more about your buy-from motion. You've talked about partner success, which is great to hear.

I guess to that point, can you talk a bit more about why you're so confident that some of these sales investments are effectively targeted to really get the most leverage out of all of these new products that seem to be sort of the right product at the right time?.

Yes. It's a great question, Matt. So let me take a stab at it, and then I'll check in to make sure I'm headed in the right direction, and if I need to clarify, I can..

When we think about the opportunity in the enterprise, we've talked about the importance of both the sell-to and a buy-from go-to-market motion. And we've also talked, Matt, about the 2 critical personas that we serve, enterprise architects and application developers.

One of the things that we spend a lot of time on is studying our customer base and truly understanding how are they -- are learning about, considering, testing and finally, deploying our technology and the different care-abouts between those personas..

And on an opportunity-by-opportunity basis, we can actually look into and work with our sales and marketing teams to understand the various touch points with those personas.

Furthermore, we ensure that when we're talking about our technology that we are positioning in a way that aligns to the care-abouts between those personas, which, quite frankly, can be different despite the fact that enterprise success is ultimately about those 2 working together.

And so we're constantly testing the effectiveness of everything from marketing to field resource allocation to ensure that we're aligned to those personas..

I think part of what you're talking about is the expansion of the portfolio and how do we get more of the business aligned from that buy-from motion which, quite frankly, is one of the reasons we're so excited about our managed offering, which we believe is going to be the form factor that best sets up for that buying motion.

And we think that's going to be additive to our model..

Now we've talked about that we will eventually be giving specifics around that.

Right now, we'll give you general momentum, but the leading indicators on cloud trials and developers in our database and engagement of developers and measured in multiple ways, those all help us understand that what we're doing is working, and in the event that we need to make an adjustment, we can make an adjustment.

So we have a lot of those leading indicators. That's a big part of our confidence on the upward trajectory and why we think the accelerated growth is such a real thing for us as a company. .

That's -- no, that's exactly what I was looking for. And then, Greg, obviously, the RPO growth was really quite strong, I think 47%, really stood out to me. You noted some of those were, I think, were from some early renewals that benefited RPO but not necessarily revenue and ARR.

Can you talk about sort of how those flow -- the dynamics of how that flows into ARR and revenue? And what were some of the assumptions embedded in that for your kind of your 3Q and '22 outlook?.

Yes. Sure. You got it, Matt. Thanks again for the question today. Yes, again, feel good about how we deliver the core ARR and RPO. These are great deals that we're talking about. Again, there were 2 sort of large early renewals, are exactly what we want in terms of renewing with large upsells. Plus we had a large new logo that had a future start date..

Look, enterprises buy when they want and need it. We don't always have the exact timing. There's always these types of deals that are sort of floating around and potential. We landed a couple of large ones today.

And if you think about buying this kind of software, when I buy software from a budgeting, I look for the largest, most enterprise critical and buy those first. And so we're happy to see customers who are doing the same with us. .

So the way it would flow, though, is we booked the deal in the quarter. They have future start dates. So we put it in ARR today, and obviously, it goes in RPO. But because the dates are starting in the future, we don't bill for those nor do we start recognizing revenue until we have those new subscription start dates.

So that's the way it plays in terms of what the near-term metrics versus some of the longer-term metrics are. And again, that's why we've really focused on ARR as the best metric to view Couchbase because we've aligned that to take some of that noise out of the system when we get some of these deals that have future start dates.

So that's really how it flows, Matt. .

Our next question comes from the line of Sanjit Singh from Morgan Stanley. .

Congrats to the team on the first quarter as a public company and the solid start in 2Q. My question, Matt, is -- on a couple of questions already been asked, I just wanted to sort of get a little bit more color.

First, as we get into the second half, that's really -- when we look at the second half of last year, that's really where we started to see the impact from the pandemic in terms of ARR growth. So going into the second half this year, how are you feeling about the renewal and expansion motion, particularly in Q4? I know it's a little bit early.

We're about sort of several months away.

But what's your sort of initial view on how that Q4 renewal base is shaping up?.

Yes, Sanjit. I appreciate the clarification because the dynamic was mostly a Q4 one, not the entirety of the second half.

Look, as we think about our business and how we've guided, rest assured, we're looking at the entirety of our installed base that -- which is up for renewal, understanding where enterprises are with their projects, new applications.

And so short of giving you specifics on an account-by-account basis, I think all of that intelligence is factored into how we're thinking about the second half..

I think we've been working on those accounts throughout this time period, again, particularly with the distressed industries, making sure that we show up as a trusted adviser and ensuring that they are deriving the full value of the Couchbase platform as they get creative on additional applications as their businesses reemerge..

So we've stayed very close to them. We're in constant contact across all aspects of our field teams, sales, systems engineering, services, et cetera. And so look, I think we're giving you how we feel about it. I think as Greg would say, we're being responsible with our guidance, and we'll continue to give specific updates as we go. .

That's great to hear, Matt. My follow-up question is sort of around Couchbase Cloud and the sort of pending release on the SaaS-hosted version.

If I think about the opportunities across 4 different buckets, I was wondering if you could sort of stack rank for me which of these are sort of more near-term opportunities and which ones would be sort of more longer term..

And those 4 buckets would be sort of monetizing the Couchbase open source space, that community.

That's sort of number one; second, targeting the application developer market more broadly; third, in terms of the existing customer base, then sort of expanding their capabilities with Couchbase Cloud; and then the fourth bucket would be again on the existing customer side, outright migrations, either from Couchbase Server to Couchbase Cloud or that relational displacement opportunity.

So I was wondering if you could just sort of, in your mind, how you think about those 4 buckets. .

Well, Sanjit, here's the great thing. I think all 4 are growth vectors for Couchbase, and I think all 4 represent significant opportunities.

If I were to kind of group this, I think our ability to get after a different set of applications with a easier-to-consume offering, which is our as-a-service portfolio, I think that's going to lend itself to application developers, net new projects, new logo opportunities.

I think that's going to be a big uplift for us as we go forward and we execute..

I love the fact that you're calling out monetizing open source.

I may augment that a little bit and say having developer-focused offerings that allow us to capitalize on the development and test and preproduction aspect of application development, I think that's going to be quite significant, both in driving top of funnel in addition to the uplift from an overall business perspective.

So we're certainly super excited about that aspect of our business, which is probably the thing that's the most new to us as a company from a business model perspective..

As you can probably appreciate, I think we are really, really good at leveraging our accounts. That's because we have a great database. We do everything we can to ensure our customers are satisfied. Sanjit, I'd be hard-pressed to come up with a single customer that we're not talking to cloud about. So I think that's a matter of time.

And that's going to be a function of migrating existing applications, rolling out new ones..

The fact that we have multiple ways of attacking our cloud offering with the differentiated [ NVPC ] solution and what we're going to be doing over time. As I've said, we're all about ensuring we have the most capable database.

The fact that we're going to have so many new and leading ways to consume the industry-leading modern database, that really underpins our excitement about the opportunity in front of us. .

Our next question comes line of Jason Ader from William Blair. .

I wanted to ask a competition question. I'm assuming that you run into MongoDB a lot. You mentioned a win that you had on the call.

And I wanted to just understand better, when you do win, why do you win? And when you lose, why do you lose against MongoDB?.

Sure, Jason. So first of all, credit where credit's due, I think Mongo has done a very nice job of building a great company and continue to execute. I think, quite frankly, it shows what's possible in this massive generational market transition that is databases.

And despite their success, what has us with big smiles on our face is that we focus on a different set of problems. We are focused on enterprise applications, Tier 0, Tier 1 applications that have a different level of requirements on scale and performance in multi-cloud and cloud to edge.

And that has been the optimization point that has really driven the build-out of the Couchbase platform..

If you think about some of the specifics then that provide differentiator for the applications where people prefer Couchbase over alternative solutions, a lot of it is scale and performance and our in-memory, shared-nothing scale-out architecture that has been designed from the outset with a single platform to go from cloud to edge, that is unique to us as a company..

The fact that we continue to consolidate platform capabilities into a single solution, both caching and a JSON database, adding operational analytics and additional services, Couchbase Server and Couchbase Lite and always thinking through how to integrate those things in a way that serves the enterprise, that's core to our DNA.

If you think about the de facto language of the database industry, it's SQL. And from the early onset of our database build-out, we chose SQL because we thought it was the best for the industry, certainly not because it was the easiest to implement, quite the contrary..

But if you think about the familiarity of relational databases and you combine that with all the power that we've put into our innovation of the core platform, this is the database that has been built for enterprise applications. And when we get into opportunities, I think we prove that out.

And then once developers and application architects start to see the power of that, that's what really drives the land and explode model that we've become so known for.

Our ability to open that up with some of the things we've talked about only further accelerates our opportunity and becoming not just source of truth but system of record for many more enterprises as we go forward. .

All right. And then, Greg, a quick one for you. You mentioned in your prepared remarks about the travel -- well, actually about COVID-impacted industries, maybe seeing some softening there, and I'm assuming travel and hospitality in particular.

Can you just give us some more detail on what's happening? And maybe when did some of the activity start to soften there?.

Yes. Sure, Jason. Good question. And look, we spent some time on this, obviously, through the roadshow and the IPO process, talking about the COVID impact we had.

We did have a cohort, about 15% of our ARR consumer-facing travel, in-store retail and in-person entertainment that was particularly hard hit, and we saw that part of the business, instead of growing 30-plus percent, essentially go to flat where we're renewing those accounts really, really well, but there's just not an opportunity to expand.

And we continue to see that..

And I think we'll still see that through Q3, and we're cautiously optimistic that by Q4, we'll start seeing it turn. And the reason why is because that's when we started seeing it, in particular last year..

So again, we were growing 30% through Q3 last year, and then we started seeing this COVID impact really start taking over on this cohort, which is a little different than some of the other companies. So we saw it a little bit later. It's going to sort of work itself through a little bit later.

But we're, again, cautiously optimistic, by Q4, we're going to start seeing that part of the business start growing again. .

Our next question comes from the line of Brad Reback from Stifel. .

Matt, I think during the prepared remarks, you talked about an increase in partner-sourced deals, either that's happening or that's an opportunity.

Can you give us a sense of how sort of what percentage of deals right now are touched by partners and where you think that can get to?.

Brad, thanks for the question. So first off, I appreciate you recognizing the importance of partners. We have many different types of partners that we are working with, everything from ISVs to systems integrators to regional partners that may be focused on a specific vertical.

And I think some of the wins that we talked about indicate the power of the Couchbase platform and underpinning their kind of dependence on Couchbase as they go forward..

I can tell you the number of partner sourced and partner influence does fluctuate a little bit quarter by quarter. That's been a number that's consistently grown over the past several years as we've been investing in this. And we indicate that Greg would... .

Of 40% of our deals approximately are partner sourced or influenced on a quarter-to-quarter basis. It can be a little higher, a little lower, depending on the quarter, but that's a pretty good proxy for where we're at. .

Yes. And Brad, those are deals that are happening. I think from a qualitative perspective, what I love seeing is the investment in next-generation digital services because I think that's an indicator of big demand that's going to be additive to the company and will also allow us to have better go-to-market efficiency as those things execute. .

Perfect. And then, Greg, just a real quick one.

Share count we should be using for the quarter and maybe for the year?.

Yes. Let me have a look at that here, Brad. I'm going to probably have to follow back -- follow up on you, but we'll certainly share that with you. .

Our next question comes from the line of Rob Oliver from Baird. .

Great. Matt, one for you and then I had a follow-up for Greg. Just specifically on Couchbase 7, I would love to hear about some of how that contributed to the pipeline uptick, which you cited in your prepared remarks. I know some really exciting features in there like SQL offload transactions and data containment.

So would love to hear about the momentum there, how much that contributed to that pipeline uptick and whether that played a role in any of the pretty significant expansions you guys saw this quarter. .

Rob, appreciate the question. First thing I would tell you is we pride ourselves in being very market-focused in our innovation. We listen to customers. We understand their unmet underserved needs, and when we go tackle next-generation innovation, that's in service of the market opportunity that we see..

I think you're right to call out some of the powerful capabilities that really combine relational technology with the power and strength of NoSQL and a very seamless and easy-to-deploy way.

It's hard to say, Rob, that there was a specific opportunity here or there that because of those features we generate because people are really thinking about us as a go-forward platform. If I look at it another way, there's probably not a customer out there that isn't fully aware of these capabilities as they're making long-term investments..

So to me, it's less of a -- we go do this and it generates pipeline. I think it's a continual -- we continue to innovate. We share a road map with our strategic customers. They get excited about it. I would say the response of 7.0 has met or exceeded expectations that we have.

And I think it's really starting to open the eyes of customers that we don't have on how powerful of a platform we can be in enabling new applications and, quite frankly, doing so with better TCO than anything in the industry.

So that's probably a factor that will drive demand that may not have been in our existing pipeline, that relational offload and the opportunity that sets up. .

Great. That's great color, Matt. Appreciate it. And then, Greg, to -- for you if I can squeeze a quick one in as well. Usually appreciate the opportunity to see you guys at Connect. Obviously, it's going to be virtual this year.

But some of the product announcements that you guys alluded to in your prepared remarks around Couchbase Cloud, are those things we can expect to get perhaps some more color around at Connect later in the fall?.

And then the second one, Greg, is just around some of the larger deals, obviously, an earlier question on really nice expansion in RPO. I think you said 60% of that's going to be booked in the next 12 months. So any kind of color around the length duration of those larger renewal deals, which are significant would be helpful. .

Well, I'll take the first one. We would welcome all of you to Couchbase Connect. It's coming in the second half on October 20. The theme is Modernize Now, and you're going to hear a lot of exciting announcements and activity on what we're doing for developers, what we're doing with our portfolio, cloud and other parts of it.

We've got a lot of sponsors, partner contributions, customer track. So again, stay tuned for a lot of exciting things, and I would love to see you all there. .

Yes. And Rob, on your question about the deal, so the 2 deals, those early renewals we talked about, 1 was a 2-year deal. 1 was a 3-year deal, very in line with what we would expect. And quite honestly, just the overall duration really was within range as a total company this quarter. So we -- this wasn't a -- we were expanding the duration materially. .

Our final question for today comes from the line of Ittai Kidron from Oppenheimer. .

Last but hopefully not least. A couple of questions for you. One, Matt, on the customer adds, it looks like this quarter, you're actually down on a year-over-year basis from a customer add standpoint.

And I know there's some randomness to it is -- but what's your level of confidence about your ability to start delivering kind of bigger increases in your customer accounts on a quarter-to-quarter basis?.

Ittai, certainly not the least. I appreciate the question. Look, the first thing I would say is when I think about the health of the company, I focus on the quality of our installed base.

Do we have large enterprises? Is our footprint in that large enterprise significant where we're deployed as source of truth, moving to a system of record? Are we set up for our multiple vectors of growth?.

And from a qualitative perspective, I would tell you that we had some really nice lands in the quarter. And quite frankly, where we had churns, it wasn't significant customers where we were dependent on big applications..

The other thing that I look at a lot, knowing that start dates on enterprise applications aren't perfectly predictable is the overall momentum of how new logos are tracking through our pipeline.

And despite the fact that we might not have seen as many get over the goal line as we would have wanted, we did see a lot of progress, and we expect that all of the investments that we're making on go to market, our enterprise teams getting back at it, people understanding the value proposition of things like 7.0 that we will see an acceleration of new customer acquisition..

The other thing that I would tell you is all things cloud and our focus on developers, that's a big lever that we're going to pull that's going to directly contribute to this number. So we feel good about the quarter from that perspective. Our field teams are doing a great job of evangelizing the Couchbase platform.

I think the market is starting to recognize Couchbase more broadly than it ever has, and those are all good things for us as we go forward. .

That's great. That's great. Greg, just a follow-up for you on the RPO side, clearly, a great number this quarter.

But just for the sake of managing expectations given the kind of the early renewal, would it be safe to assume that RPO needs to perhaps not show as good of an outcome next quarter just because of the pull-forward effect?.

Yes. Ittai, look, we're obviously not guiding to RPO specifically. So we haven't commented on that. But again, this was a particularly good quarter from an RPO perspective. That said, I would say when we get to Q4, Q4 is our largest quarter.

So there can be some opportunity there, but it's very dependent on deal closures and then length and duration of deals as well. So we'll provide some more color on that as we go through the quarters here..

And then just -- Ittai, sorry, just to answer Brad Reback's question from before, so everyone can hear, the weighted average shares assumed for Q3 is 43,350,000 shares. .

This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Matt Cain, CEO, for any further remarks. .

Great. Well, thanks to everybody for joining our first quarterly earnings call. And again, thanks to our employees, partners and customers for your support and placing your trust in Couchbase.

As I hope you can tell, we are thrilled with our performance in Q2 and even more excited about the massive market opportunity in front of us for our modern database for enterprise applications. And we'll see you all here next quarter. Thank you very much. .

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..