Thank you for standing by and welcome to Couchbase 's Third Quarter fiscal 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator instructions]. Please be advised that today's conference may be recorded. [Operator instructions].

I would now like to hand the conference over to your host, Edward Parker, Investor Relations, please go ahead..

Good afternoon, and welcome to Couchbase's third quarter 2022, earnings call. We will be discussing the results announced in our press release issued after the market close 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 quarterly report on Form 10-Q for the quarter ended July 31st, 2021, our quarterly report on Form 10-Q for the quarter ended October 31st, 2021, to be filed with the SEC and other periodic filings with the SEC.

During the call, we'll 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 our final IPO prospectus, which are available on Investor Relations website. With that, let me turn the call over to Matt..

the ability to enable enterprises to leverage our modern database in whatever deployment and consumption model that that business requires, while at the same time, fundamentally changing how developers can access the platform. With Capella, this access is just a matter of a few clicks away.

We've invested an enormous amount of time into this offering, and as I discussed earlier, we're thrilled with the customer feedback we've received so far. We have a robust Capella roadmap ahead of us and you can expect more announcements next year, including support for additional cloud providers, more features, and more capabilities.

Needless to say, we have very high ambition for our as-a-service portfolio. And of course, our product investments go beyond Capella. Couchbase is built for a world where the applications are delivered as a continuously running service from the cloud and consumed at the edge on occasionally connected devices as mobile applications.

As you know, early on, we uniquely made investments in our mobile and edge database capabilities to completely round out our ability to run anywhere. We are currently investing in the next release of Couchbase mobile, our full featured embedded NoSQL database for mobile and edge computing.

The forthcoming innovations will make our capabilities more easily embeddable and programmable at the edge, catering to a vast variety of industrial, retail, healthcare, and IoT applications.

You'll also see focus on secure management and operations from cloud to edge and simplified administration to make remote databases at scale significantly easier for customers. We look forward to sharing more about the next phase of our mobile and edge offerings. Stay tuned.

The next release of our core platform is also coming next year and with it, we're making it even easier to migrate from relational databases.

We are the only modern database for enterprise applications that makes it easy to seamlessly combine operational capabilities and analytical insight, and the next Couchbase server release will feature important updates to our analytics features.

You will also see us extending our core platform support to additional processing architectures, which will reduce the cost for both our customers, as well as Capella in the future. In summary, we had a strong quarter.

We wouldn't have had 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 aim to be good humans always. To act with uncompromised integrity and to allow all our employees to serve their families.

This allows us to attack hard problems for our customers and play to win together so that we make tomorrow better than today. We achieved that in Q3 and expect to do so in Q4. The best of Couchbase is yet to come. I will now turn the call over to Greg to talk about our financial results. Greg..

Thanks, Matt. And thanks again, everyone, for joining us. As Matt mentioned, Couchbase 's strong third quarter performance was driven by ongoing large deal momentum and our core enterprise business, including some significant expansion as well as acceleration of our cloud business.

While some of our customers in distressed industries remain impacted by the pandemic, we saw improvement in the third quarter and are cautiously optimistic that those customers will continue to recover. Total revenue in Q3 was $30.8 million, growing at 20% year-over-year and up 4% from the prior quarter.

Subscription revenue was $29.0 million, also up 20% year-over-year and up 3% from the prior quarter. Professional services revenue in Q3 was $1.8 million, up 16% year-over-year, and 9% quarter-over-quarter. Total annual recurring revenue for ARR was $122.3 million, representing 21% year-over-year growth and 6% quarter-over-quarter growth.

We're pleased with ARR performance, as year-over-year growth accelerated in the quarter. We expect this trend to continue into the next fiscal year. As a reminder, ARR 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 time. As most of you may know, we continue to serve the most mission-critical applications at the largest enterprises.

We remain focused on this segment of the market and are pleased to report our ARR per customer performance in the quarter was $215,000, up from $193,000 from the same period last year. Our dollar-based net retention rate was 115% for Q3.

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 remains best-in-class. In Q3, our gross margin was 88.3%. This compares to a gross margin of 87.9% a year ago and 88.3% last quarter.

We have a long-term gross margin targets remain above 80%, with our trajectory somewhat contingent on the rate of uptake and eventual mix of our growing as-a-service offering. Turning to expenses, our sales and marketing expenses for Q3 were $21.5 million or 70% of total revenue, compared to $17.1 million or 67% of revenue a year ago.

We continue to make significant investments across our sales and marketing organization, including aggressive additions to quota carrying headcount, as well as ongoing investments to customer success, our partner program, and bolstering our go-to-market expertise in cloud.

Research and development expenses for Q3 were $12 million or 39% of revenue compared to $9.8 million and 38% a year ago. We've invested purposely and aggressively in product engineering. Specifically, we continue to invest in Couchbase Capella, in addition to ongoing core platform development.

General and administrative expenses for Q3 were $5.8 million or 19% of revenue, compared to $3.6 million and 14% 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 and preparing for and being a public Company.

Non-GAAP operating loss for Q3 was $12.1 million or a negative 39% operating margin, compared to a negative $7.9 million or a negative 31% operating margin in the year-ago quarter. This result was significantly better than our expectations and was driven by better-than-expected revenue, as well as lower-than-expected OpEx, primarily due to timing.

We remain committed to investing aggressively, and although we are on track to exceed our full-year operating loss target, we now expect our second half OpEx investments to be more weighted towards Q4. Non-GAAP net loss attributable to common stockholders for Q3 was negative $12.6 million or negative $0.29 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 Q3 with $207.6 million in cash, cash equivalents, and short-term investments.

Our remaining performance obligations, or RPO, totaled $124.3 million, up 41% from $88.3 million last year and up 5% from $118.9 million from the prior quarter. Our year-over-year RPO growth is reflective of the strong renewal and upsell activity.

We expect to recognize approximately 62%% or $76.7 million of the total RPO as revenue over the next 12 months. Operating cash flow was negative $19.7 million compared to negative $13.1 million a year.

Free cash flow was also negative $20.3 million or negative 66% free cash flow margin compared to negative $13.3 million and a negative 52% free cash flow margin a year ago. I will now conclude the call by providing guidance for Q4 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. Furthermore, as I indicated earlier, we're seeing signs of recovery in portions of our customer base impacted by COVID.

That said we're continuing to see variability with respect to the implementation timing of certain deals, which impacts our revenue visibility. Accordingly, we are prudently considering this variability in our revenue guidance, even as we see continued upside our ARR outlook.

Our guidance also assumes some continued uncertainty among distressed industries and our go-to-market motion as we continue to monitor pandemic-related developments. Clearly, a deviation from this assumption, would cause us to modify our guidance higher or lower.

For the fourth quarter of fiscal 2022, we expect total revenue in the range of $33.9 million to $34.1 million, therefore, a year-over-year growth rate of 16% at the midpoint. We anticipate ARR in the range of $129 million to $130 million, which represents 20% growth at the midpoint.

We expect a non-GAAP operating loss in the range of negative $10.6 million to negative $10.2 million. For the full-year fiscal 2022, we expect total revenue in the range of $122 million to $122.6 million, therefore, a year-over-year growth rate of 19% at the midpoint. As noted above, we expect ARR growth to be 20% at the midpoint.

And finally, we expect a non-GAAP operating loss in the range of negative $47.0 million to negative $46.6 million. With that, Matt and I are happy to take your questions.

Operator?.

[Operator instructions] Our first question comes from the line of Sanjit Singh of Morgan Stanley. Your line is open..

Hi. Thank you for taking the questions and congrats on the improved ARR growth above 20%, really nice to see. I guess I'll start with Capella. You mentioned, Matt, some of the number of clusters deployed in the month after lease being significantly up.

I think broad, so can you just go through some of the developer initiatives you're working on? And when do you think this can -- Capella can cross an important threshold, let's say 10% of revenue given from where you're starting today? Is that a 2-year timeframe, a 1-year timeframe? What's a reasonable timeframe to think about hitting some of these initial revenue thresholds?.

Sanjit, thanks for the question and appreciate the commentary. We're certainly excited about the re-acceleration. Capella marks a major milestone for us as a Company, as you know, Couchbase has been architected for the most mission-critical applications.

We have a cloud to edge, cloud made up platform, but what the Capella offering allows us to do is completely simplify the ability for developers and other personas to adopt that industry-leading technology. What I talked about in the call, is the early indication that we're seeing of just how valuable that consumption model is.

And it took us 3 weeks to see the volume of clusters and trial activity that we saw in the previous 3 quarters. That's not to do diminish our NVPC offering, but more so to demonstrate how powerful it is when we provide a form factor that is so easy, that within a couple of clicks, they're up and running with the full power of the Couchbase platform.

It's not just about the cluster volume either, it's about the conversion that we're seeing in people that are interested to deploying clusters, where we've seen a 4 to 5X increase in efficiency of that metric. So leading indicators suggest that we've got the product market fit that we've been working so hard for and talking about.

Setting aside the product lead growth initiatives, you asked about developers, we're putting a lot of time into the developer experience. And more specifically, when we think about it, there's developer advocacy, making sure we're building great products and providing integrations for developers to see the full power of Couchbase.

You can go out there and get up and running via web-based interface in what we call the playground, really simplifying the path to trying out Couchbase. We're investing in developer relations.

So engaging the developers, articulating what other customers are doing with the power of our platform, how they're finding our elegant design and enabling truly next-generation applications. And then finally, organizing communities to make all of that that much more efficient.

We're excited that in the quarter, Sanjit, all leading indicators on developer traction, everything from web page views to organic traffic, time on page, downloads, were materially up quarter-over-quarter and year-over-year. So these are initiatives that we've been working hard on for a long time.

Our development cycles, our go-to market efforts are aligned. We're going to keep our foot on the gas pedal and we think we're only scratching the surface on what's possible..

Greg, just touch on your question. Hey. [Indiscernible]. While we're really excited about Capella and what it's going to do for us and doing for us today, we're still not at the point where we're going to be disclosing anything specifically around the financials or the time frame.

We're certainly continuing to work through that, and when the time comes, we will obviously share that. We're just not ready to do that today, given that it's still an immaterial part of the business..

Got it. And then just one follow-up question for you, Greg. As we think about the relationship between ARR and revenue, and this certainly came up in the last call around some of the timing of deployments. But if you could just big-picture it for us.

We've had I think going on 3 straight quarters, actually multiple quarters of sustained 20% or above ARR growth.

And so as we think going into fiscal year '23, given that you have -- pull up that sustained 20% growth ARR, shouldn't that converge or align with a 20% or better type revenue growth profile going into next year? And if it doesn't, if you could just sort of walk us through why would that be the case.

Yeah. Good question, Sanjit. So just about next year, obviously, we're not at the point where we're going to give fiscal '23 guidance yet. We'll do that a quarter from now, so I'm not going to comment on specifically about next year. But, look, I agree with your assessment that revenue is lagging and it will eventually catch up with ARR.

So that is ultimately going to be our view as well. And right now, because of our definition of ARR, we're obviously able to count things that are in the future where they're not generating revenue today, but we will be in the future.

And I would also point you to RPO as another good metric to show you the really high quality deals that we're seeing with RPO growing over 40% and current RPO on an escalating path for the last several quarters. So it will certainly come.

We obviously like the fact and we hope that ARR continues to remain above the revenue growth, but that's where we're going to see. And again, I would always focus that ARR is our most important metric that we follow.

We set the definition of that for that exact reason, because the deal we do with these large customers, the implementation timing and the start dates is always a little uncertain. And so we have to account for that..

Makes perfect sense. Thank you, Matt, I appreciate it..

Thanks, Sanjit..

Thank you. Our next question comes from Matt Hedberg of RBC Capital Markets.

Your question, please?.

Hi, guys. Thanks for taking my questions. And I'll offer my congrats as well on the acceleration this quarter and what sounds like a strong start to Capella. Matt, I wanted to ask on the partner front. You noted, I think you've said that the first 3 quarters of the year outpaced all of partner activity in fiscal '21.

I'm wondering, could you put a finer point on why that's been such you've seen a lot of strength there? And to the extent that Capella offers another interesting sales motion for the partner channels, could you articulate that as well?.

Matt, great to hear from you and appreciate the question. When we think about our partner business, this is an area the -- of the Company that we've been investing in for many, many years, and believe it's a key foundation to building a great database and specifically, an enterprise database Company.

When we talk about our partner investments, that's everything from GSIs to ISVs to cloud service providers.

And we study very carefully not just how we are influencing large enterprise opportunities and leveraging the relationships and the reach that these partners provide, but also opportunities that are sourced, where partners are bringing net new opportunities to the Company.

I'd say the continued strength is expected, Matt, because we've continued to make this a point of focus and then investing in it for many years. And if anything, we are accelerating our investments there, particularly in the area of cloud service providers, as they become even more important for us with Couchbase Capella.

But I would tell you that Capella is not just an opportunity for Cloud service providers. It's an opportunity across the enterprise. Size, deploy, hundreds of thousands of developers and touch developers and large enterprises having a form factor that's conducive to allowing them to accelerate digital transformation projects is critically important.

The ISV channel is one particular strength for us, and the ability to embed a hosted offering into a solution stack opens up opportunities that are additive to our existing portfolio. We remain very excited about this.

It's helping us gain leverage in our overall go-to-market and will be an area that we continue to focus on, not just with go-to-market investment, but ensuring that we have the appropriate roadmaps and technology integrations to grow that channel as we go forward..

That's super great and exciting. And then Greg, if I think -- if I have my math right, I believe cRPO grew near 34%, I guess.

Is that -- am I in the right ballpark for cRPO growth?.

Correct. Yes, that's exactly right..

And maybe following up on Sanjit's question on -- I know you're not guiding the next year, but to me that would seem like a pretty good indicator of the trajectory of the business. RPO 's grown north of 40%, I believe, now 2 quarters in a row.

How should we think about -- and maybe the question is, was there anything abnormal, like large deals, that drove the RPO strength? And is it right to look at cRPO as a good indicator for maybe where next year could eventually get to for our growth?.

Yeah, yeah. So good -- great question, Matt. And again, I'll answer this again. We will continue to reinforce ARR as the key metric that we focus on in the business. But look, we had a very strong quarter. Again, we're working with some of the largest enterprises and are paying the very complex.

deployments, and we're doing big, healthy renewal and expansion deals, and there is a multiyear dynamics. You're seeing that in the total RPO, figure also seeing in the short-term RPO as I mentioned with Sanjit question was around the implementation timings. There's variability there.

And so that's why you see some of the [Indiscernible] seeing with current RPO and ARR and versus revenue is a [Indiscernible] indicator, but we feel great about where the ARR is heading in terms of re-accelerating and getting healthfully back in the 20s, and the cRPO just add to that.

So we're excited about what that brings in the future, and we're going to continue to do these great, healthy deals that are a long-term focus for Couchbase..

Got it. Thanks a lot, guys..

Thanks, Matt..

Thank you. Our next question comes from Ittai Kidron of Oppenheimer. Please go ahead..

Thanks, Matt. Guess what, I want to talk about Capella as well.

Maybe you can talk about when you think about the first users that you're now seeing on the platform, how many of them by the way are completely new to Couchbase versus existing customers that are just looking for to diversify their deployment mode?.

It will -- Ittai, first of all, I'm not surprised you want to talk about Capella, and I could talk about it all day because of the potential it has for us. Quite frankly, we're seeing a very healthy balance of existing customers and new customers.

We had the biggest quarter in our history from our overall Cloud business, which was our NVPC product and I was asked what was I pleasantly surprised by from the quarter.

Quite frankly, the commercial activity on all things cloud, it's as if we released "hosted " Capella a quarter ago because of the number of conversations that we're having, which I think is indicative of the demand that we have.

We had a new logo as a matter of fact, in Asia, where we work closely with AWS short sales cycle, heavy demand for the technology, and the partnership allowed us to show up in local language and local support to get things over the line. That was a completely new logo.

At the same time, we're talking to some of our largest customers for net new applications and eventually migrating existing application. So I'd say the activity is very healthy. When we look at that trial activity, we do fundamentally believe that Capella will be the new logo engine for the Company as we go forward.

And I think when we studied the clusters deployed and some of the early stage top-of-funnel activity, we're certainly seeing that really extending the reach of the Couchbase platform to many more customers..

That's great. So maybe a follow-up on this.

If you think of this as a major driver for you going forward, how do you think the go-to-market needs to evolve in order to enable that? Is self-serve going to be a material element here with Capella or you're still going to require significant direct sales force investment?.

Yeah, Ettai, we think about our go-to-market as a enterprise, sell to motion, and we are augmenting that with a buy from motion. And so we certainly expect new customers to come to us, find us, and start to get into trials on Couchbase Capella. At the same time, we will be articulating the value proposition on that offering to existing customers.

We've been investing in both of those motions and ensuring that we have a well orchestrated set of hand-offs between them. But over the course of the past many quarters, everything from additional sales capacity, to marketing investment, to cloud specialization, to overlay cloud securities experts, we're really being mindful of that balance.

And most importantly, starting from a how do we satisfy our customers and ensure that they are successful, whether they're coming on their own via one of the marketplaces or we are working with one of our existing customers to migrate over.

We're pretty excited about the investments and the foundation we have on the go-to-market side and are starting to see those really start to pay off..

Okay, good. Thanks. Good luck, guys..

Thank you..

Thanks. Your next question comes from Raimo Lenschow of Barclays. Your line is open..

Thanks. 2 quick questions from me. Greg, if I look at Q3, definitely help you, if I look at Q4 guidance compared to some of the consensus numbers out there and maybe consensus is a little bit all over the place, looked a bit differently.

Can -- was there any pull forward from Q4 and Q3 that kind of maybe impacted numbers or what's driving it there? And then one for Matt. If I think about the pandemic-impacted industries and them coming back, you talked about some progress there.

How much of the -- if you think about that in the coming quarters, do you think there's more to come or are we kind of done now with recovery here? Thank you..

Thanks, Raimo. This is Greg. I'll answer your first question and then turn it over to Matt. Look, we don't necessarily pull forward from future quarters per se. Look, we do deals when customers want to do deals. So are there times where we do early renewals? Sure, but it's not a pull forward per se.

We're not aggressively pulling forward, and we talked about that in the last call. There was a couple of early renewals where customers want to do deals. So I wouldn't say there's any pull forward. I think you're probably talking potentially about the revenue guidance.

Look, I would tell you on the revenue side, look, we're just started to see some of these large customers we have. Just think further ahead about their implementation timing, and part of it I would say is budget-related, part of it is just more prudent in terms of their buying timing.

And so we're very excited about these deals, and we're trying to provide the most accurate guidance to you and also be prudent. So there's a little bit of that in there on the revenue side.

And the only other thing I would tell you on the guidance is, look, we had less expenses, and I talked about in the prepared remarks, a little less expenses in Q3 than we had originally planned for the move to Q4. It's just a -- it's a timing difference, but there is no impact on the full year.

And that's why you saw for the full year, we've raised ARR revenue and our profit guidance as well..

Yeah. Okay..

Lionel (ph), let me address your question on pandemic, and in particular, distressed industries. As you know, our platform serves travel and hospitality and other verticals for that matter very, very well. And clearly with the pandemic being what it was those companies were under duress.

As we've talked previously, we took great pride in showing up as true partners to those companies during those times, making sure that we weren't just a technology vendor, but a partner that was there for them in good times and in future great times. We did mention that we saw some return to some very healthy levels.

One of my most proud moments during the quarter on behalf of the Company, we were dealing with one of the world's largest hospitality companies.

They communicated to us that their business is at 50% of pre -pandemic volume and yet we had a significant expansion with them as they invest in Couchbase as a true digital transformation platform for the future.

I don't think that happens if we don't have technology that's future-proof that we have great relationships that they're truly seeing Couchbase as one of their key partners. So we're seeing points of strength, we are certainly engaged with our customers in this quarter and beyond, and I'd say we're cautiously optimistic. We can't predict the future.

Obviously, there is still variance and pressure on return to normal activity, but I think as we mentioned, this is part of our acceleration and one of the many contributing factors to additional tailwind as we go forward..

And I would just add, there was one other customer too, unique situation, cruise line that last year came to us, obviously, in the midst of the pandemic, wasn't generating, wasn't selling, generating any revenue. And look, we had to do a special deal and take care of them as one of our valued customers.

And they've come back this year and they are getting back to business and we've got them now a multiyear deal where we're going to more than double the estate at that customer.

And so that's just a great example of where we are starting to see some of that return from COVID and how we've taken care of these customers and done right by them, and we're going to see them as great customers for many years to come..

Okay. Perfect. Thank you..

Thanks, Raimo..

Thank you. Our next question comes from Jason Ader of William Blair. Please go ahead..

Thank you. Good afternoon, guys. I wanted to ask about the comments, Greg, that you made on ARR expected to accelerate -- continue to accelerate going forward. I just wanted to unpack that a bit and understand what's giving you that confidence.

How much of it is what the pipeline that you see right now versus some of the macro assumptions around COVID recovery versus the uptick of Capella and the contribution from Capella?.

Yeah. Great question, Jason. Yeah, look, we talked about this even on the IPO road show that we knew we were going to be heading into a re-acceleration period and we feel like we're entering that now. And based on what we see both on the existing customer base and our pipeline, the new logo is particularly it's coming we believe from Capella here.

We have seen an improvement from the COVID -impacted cohort that we've talked about before. That cohort is no longer negative growth or starting to turn to positive growth.

And so it's just a combination of all those things what we see in the pipeline, the product launches we have, all those things give us excitement and confidence that we will be able to continue this acceleration beyond Q3 into Q4 and into next year..

Great.

And then did you provide the customer count, Greg?.

I did not, but I'm happy to, because you will -- the customer count for ending Q3 was 568 customers..

Okay. And then Matt.

For you just, wanted to get some comments on the competitive environment and who you're competing against mainly today and how has that changed to let's say over the last 12 to 18 months, if at all?.

Jason, I think one of the things that we take pride in is that we're focused on being the modern database for enterprise applications. We're multi-modal, we're designed as a cloud-native database that can run from cloud to edge at the highest performance and scalability, and now with any consumption model that the customers want.

So I think we take great pride in our unique differentiation that we believe we will be able to sustain in helping customers, not just with new applications, but in re-platforming relational ones. And so as we think about enterprises, they're going to be evaluating legacy relational technologies, next-generation modern databases.

But there really is not a platform that can provide the true breadth and depth of capabilities that Couchbase was designed for. And so anytime we're engaged with an account, we're proving our value and articulating all aspects of that value proposition, proving things out in proof-of-concept.

With Capella, we're able to let developers do that directly. And so look, if you were to pick a database, our customers are going to have those or will be trailing them.

But there is no other database that can do the things that we have because of the architectural approach and point of optimization that we've chosen from the very outset of our Company, which we remain committed to..

Let me ask you a slightly different way.

If I think about the 3 buckets, the cloud guys, the incumbent relational guys, and then the newer NoSQL folks, who are you seeing the most of within those -- among those 3 groups?.

Look, that is exactly how we break it down and we think about the -- if I put my -- whenever I think about competitive dynamics, I put myself in the shoes of our customers.

And they're saying, what do I need for my application? If I have an existing database, an incumbent, whether it be Oracle or someone else, can that provide the capabilities that I need? We know that that is the answer to that question is no and they're often in evaluation to figure out which technologies they can layer in to augment their applications or in some cases, offload to offer relational databases.

So that's a dynamic that we see. There are several next-generation, NoSQL solutions, Mongo, obviously, and others. Their point of optimization is different than ours.

And so while there is overlap and we may have points of comparison, when we get into scale and performance and cloud to edge deployments, those comparisons go in our favor for the applications that we're architected for. Obviously, enterprises are constantly evaluating the embedded solutions in the cloud AWS and Microsoft, probably the leading too.

But again, our job is to ensure that we're solving database problems that our enterprises can't get from other areas. And if you were to go listen to our customer base, as I know you have Jason, you're going to hear that played out, right? Performance and scale that's not available with other solutions.

The familiarity with SQL, Cloud to Edge deployments, multi-modal capabilities, everything from Key Value cash, document database, asset transactions, becoming a true source of truth and system of record for the most mission-critical applications.

You put all that into a single platform that was architected from the beginning to make those things happen. When we get into alternatives, yes, they're looking at them, but there is no other solution that has that full set of capabilities integrated into a single platform..

Thank you very much..

Thanks, Jason..

Thank you. Our next question comes from Robert -- I'm sorry, Rob Oliver of Baird.

Your question, please?.

Great. Thanks. Good evening, guys. Appreciate it. First question for you, Matt, also on Capella. Just around the large deal that you saw, I assume that was a current customer migration, but would love to hear some of the dynamics around that deal, in particular around sales cycle.

I know one of the things that's exciting about Capella is just the decline -- the lower sales cycles associated with it. So just a little bit curious in some of the early activity, particularly the larger deals, if that was reflected in terms of what you saw this quarter. And then I had a quick follow-up..

new logos, first; second, net new applications and existing customers; and then the final piece will be customers migrating their existing applications. But per my commentary, the fact that we -- I mean, we have really healthy activity across all 3 of those already.

And we think that that's only going to accelerate with the fully hosted offering that we're now in market with. So we got really exciting stuff. Again, this is new opportunities, new applications, extending reach. And it's not just in production, Rob.

As you know, developers want to try technology, they want to be deployed in test environments, they want to expand easily. These are benefits that we now have in market because of this consumption model.

And you combine that with all of the capabilities in the Couchbase platform that we've worked so hard to build and takes such great pride in, you can see why we're excited about the path forward..

That's great. Thanks, Matt. Appreciate it. And Greg, just one for you as well. Big thanks for some of the other metrics you provided, and ARR for customer up nicely, again, I think even sequentially. I know you've tried to help us understand some of the metrics that could change, like margin, for example, gross margin around, as we shift to Capella.

Is ARR one of them? In other words, clearly, we're not in the flywheel yet, where the customer count is seeing a big impact from Capella, but as we start to do, will that ARR per customer be a bit lower, or are there any other metrics that we should be aware of as Capella starts to ramp in '22? Thanks a lot..

Yeah. Thanks, Rob. Look, certainly there could be an impact on the ARR per customer. I mean, as Matt talked about, we hope that this becomes our new logo engine and we will see a lot of new logos. And obviously, those come in at a smaller ticket price and then we typically grow them.

So if we do start seeing the pickup which we expect, that certainly could have an impact on the ARR per customer as we go. As we mentioned on gross margin, obviously, the cost of Capella is greater than the self-managed software. So we'll see impact there.

We've stated that we believe we can continue to be an 80% plus gross margin business over time, but that will all depend on the mix and how fast the uptake is and all that. So those are the areas that we look for. Obviously, the offset is more customers, faster growth rate is what we're looking for out of Capella as the engine to grow new others..

Understood. Okay. Thanks again, guys. Appreciate it..

Thank you, Rob..

Thank you. Our next question comes from Dan Church of Goldman Sachs. Your line is open..

[Indiscernible] and thanks for taking the question and squeezing me in here. Just a quick one in terms of the feedback that you've seen post-release of Couchbase Server 7.0 and how it has support for asset transactions changed the types, if at all, the types of workloads you can go after.

And then to that end, when you talk to customers today, what are you seeing with respect to growth in net new workloads versus replat forming of legacy relational technology.

Is there any change there with respect to replacement of relational databases?.

Thanks for the question. I appreciate you articulating the importance of Couchbase 7, our largest server release in history and made material advancements on making it that much easier for companies that are re-platforming applications off of relational technologies.

One of the concepts that's really important to us is not just moving those applications but enabling Couchbase to move from what we call a source of truth to a full system of record. We talked about 1 of the G2K 's Amgen, not only was that a relational migration, but they are -- we are now the system of record for their data hub.

Another deal that we saw in the quarter is another G2K, actually one of the world's largest auto manufacturers, starting to repurpose off our relational technologies, combining that with net new capabilities, powering things like marketing research applications.

In this case, the team had no previous familiarity with "NoSQL technologies " but because of the SQL bridge that we've enabled, they can get into and enjoy all the benefits of Couchbase.

And so the combination of being able to service the relational data model, but also open up all the power and flexibility and agility that comes with the NoSQL engine and to do that in the single form factor, allows us with the addition of asset-based transactions that we've been in market with for a long time to again become that full system of record and what we say, increase the density of the application that we support.

You layer in Couchbase Capella, and now, not only are we managing all aspects of the database technology, but the underlying platform and infrastructure of the service. So you can see how that increases our reach, increases our wallet share, but most importantly, able to satisfy customer demand for net new and re-platformed applications..

Great. Just a quick follow up for me. You mentioned a couple -- some expenses shifting from 3Q into 4Q.

Can you update us on hiring efforts and how that's tracked relative to plan? And as you look into next year, when you think about some of the go-to-market investments that you're making, whether it's in Capella or quota capacity on the direct side of the fence.

Can you just give us a sense as to what top priorities are from this and how you're thinking about the pace of quota additions into next year?.

Yeah. Good question, Dan. Yes. I think headcount hiring is -- the headcount is where we expect it to be. We're on track. Hiring as you probably have heard, universally, is remaining challenging. We're managing through it. So. we are tracking where we want to be for headcount.

We're obviously continue to aggressively invest in both the R&D side of the house as well as sales and marketing, and you'll continue to see that as we go into Q4 and into next year, from a purely, from a capacity quota carrying, we tend to do most of our hiring in Q4 and Q1 as we ramp for next year.

And we're on track to do that again this year, but we feel very comfortable where we are from a headcount and sales capacity perspective at this point..

And Dan, one of the things that we talked a lot about is field capacity. So it's not just quota carriers, but ensuring that those quota carriers have all of the support they need across the Company to make our customers successful. Everything from SC teams to services teams, cloud specialists, customer success, more investment on the partner side.

What we think about first is, how do we get to and support our customers and then ensure that we have the appropriate investments to make sure that we're showing up as a true business partner. So we take a very balanced approach. We study this maniacally.

We understand the ratios of those resources that we need and everything from our largest companies ' G2Ks, and we're obviously going to have a different model for the buy-from motion and really being mindful about the work to be done and the resources we need to put in place, in addition to continued aggressive investment on the innovation side, and we put those 2 things together and good things happen..

Great. Congrats on the quarter, and thanks again..

Thanks, Dan..

Thank you. And at this time, I would like to turn the call back over to Matt Cain for our closing remarks.

Sir?.

Great. Thanks again, everyone, for joining us today. I just want to reiterate how excited I am about the future of Couchbase.

With the continued innovation in our leading core platform, our ongoing strength in our mobile and edge portfolio, the launch of the fully-hosted Couchbase Capella, recent large customer wins, and continued execution of our land and explode motion, we're well positioned for acceleration.

We're looking forward to keeping you posted on our progress in the quarter ahead. Thank you very much..

This concludes today's conference call. Thank you for participating. You may now disconnect..