Ladies and gentlemen, thank you for standing by, and welcome to Couchbase's First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. 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 first quarter 2023 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, our expected future business and financial performance and financial condition, and our guidance for future periods.

These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.

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 and our most recent annual report on Form 10-K or quarterly report on Form 10-Q filed with the SEC.

During the call, we will also discuss certain non-GAAP financial measures which are not prepared in accordance with Generally Accepted Accounting Principles.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as how we define these metrics and other metrics, is included in our earnings press release, which is available on our Investor Relations' website. With that, let me turn the call over to Matt..

Thank you, Edward. Good afternoon, everyone. On today's call, Greg and I will provide details on our first quarter results, as well as our second quarter and full-year fiscal 2023 guidance. Let's kick things off with a few highlights of our Q1 financial results. Revenue in Q1 was $34.9 million, an increase of 25% year-over-year.

Total annual recurring revenue or ARR was $139.7 million, representing 27% year-over-year growth. Net new ARR was a record for Q1 and RPO grew 68% to $169 million. Our gross margin remains best in class at 87.3%. Operating profit was negative $13.4 million, ahead of guidance.

I'm pleased to report that we had a great quarter and strong start to the fiscal year. In our core business, we continued to see ongoing large deal momentum, robust renewal activity, strong expands and healthy new lands.

And in our emerging cloud business, initial uptake and leading indicators of demand for Capella continue to validate our excitement in and indeed my very high expectations for our as a service offering. I'll cover more on that in a moment.

In addition to beating our guidance across all metrics, I'm especially excited that ARR grew 31% year-over-year on a constant currency basis, the third straight quarter of acceleration and at the fastest rate for us since the beginning of the pandemic.

This not only reflects our growth potential, but also the momentum we are seeing in the marketplace for a leading enterprise platform and the continued urgency behind digital transformation initiatives despite the increase in macro volatility we've seen in recent months.

Simply put, I remain confident that we have the opportunity to drive a generational rethink in the $60 billion database market. Couchbase is the modern database for enterprise applications, and we are convicted that we have the best enterprise database. And now we are equally convicted that we are well on our way to having the best cloud database.

We've made tremendous progress on this front and we've been accelerating our innovation engine towards realizing this aspiration. As a primary example, we recently announced significant additions to the Capella portfolio, as well as major enhancements to our core platform.

Let me dig into a little bit more detail about each of these innovations and our acceleration of how we develop and deliver our services to the market. First, we continue to invest aggressively in Capella and feedback remains overwhelmingly positive.

Our offering provides flexibility and ease of adoption for developers and performance at scale for enterprise applications with price performance that are superior to competitors. We are thrilled with the response thus far and leading indicators are all where we wanted them to be.

One of our near-term priorities is extending the availability of Capella to new regions and more cloud service providers to support hybrid and multi-cloud strategies.

Last week we announced Capella on Google Cloud, giving customers flexibility with where they choose to deploy Capella, improving alignment with applications and supporting hybrid and multi-cloud strategies from a single platform.

Additionally, we recently announced that Capella now fully manages and hosts a back-end for mobile and IoT applications called Capella App Services. It's worth noting that adding our unmatched support to Capella has been the number one request we receive.

We are bringing this to market significantly ahead of schedule and are delighted to address this market need.

By unifying the entire Couchbase product offering under Capella, we are delivering all of the Couchbase-as-a-service with the highly competitive cloud offering that makes it easier for developers to build the next grade mobile and IoT application.

Our unique investments in mobile and edge database capabilities completely round out our ability to run anywhere, and mobile support is a strong differentiating factor among our competition. We have a robust Capella roadmap ahead of us.

And you can expect more announcements this year, including support for additional cloud providers, enhanced developer experience and more ways to consume Couchbase-as-a-Service. Turning to our core platform.

In May, we introduced version 7.1 of Couchbase Server, which delivers meaningful advancements in performance, storage capacity and workload breadth. These new innovations significantly reduce the cost of building and running applications, while gaining operational efficiency and reducing TCO.

We also expanded our operational analytics capabilities at a time when customers demand easier access to analytics on active data. This latest core platform release is noteworthy, because it reduces deployment costs for Couchbase and sets the stage for our long-term plans for Capella.

We will continue to invest aggressively and thoughtfully in technology with an intense focus on scaling our company for long-term growth. A major aspect of this initiative is fully committing to becoming a cloud centric company. Naturally this starts with our cloud offering, but we're taking this commitment to the next level.

As we shared in March, we welcome Gopi Duddi to our leadership team as our Senior Vice President of Engineering to help accelerate our product development and delivery. Since then, we have refocused roles and responsibilities across all levels of the engineering organization pursuant to our top priority of cloud centricity.

In Q1 alone, we more than doubled the number of people focused on Capella development and we're already seeing results. The most visible sign of this is last week's Capella announcements, which were delivered ahead of schedule.

We're also evolving our software release cadence from server led to cloud led so that new features and capabilities will be released on Capella before or concurrently with server updates.

This not only results in a faster release cycle for our customers who will benefit from seamless updates, but also encourages new customers to choose Capella and existing customers to migrate to Capella. On the go-to-market front, we are engaging and cultivating a new audience of developers with our evolving buy from sales motion.

We are seeing ongoing interest in our free trial, strong engagement from existing customers and great responses to our Capella workshops. In fact, we saw nearly a 50% increase from Q4 to Q1 in new trial accounts created and nearly 45% growth in new trial clusters deployed.

And I am proud to say that we closed another seven figure Capella deal in the quarter. On the sell to side, we continue to execute on our high touch enterprise sales motion, including global return to in-person customer and prospect meetings and events.

We're seeing continued investment in digital transformation, resulting in big deal momentum, driven by very healthy renewal and expansion activity. Our partner and alliance ecosystem remains strong and continues to contribute to our go-to-market acceleration.

Specifically in Q1 we sawn over 100% year-over-year increase in partner sourced and influence new business. Now I'd like to spend a few minutes discussing some exciting customer wins during the quarter.

Western Union is a Couchbase customer delivering cross border, cross currency money movement and payment service to its millions of customers around the world across more than 200 countries and territories.

This quarter, Western Union broadened its relationship with us with the Capella transaction, which will migrate multiple applications to our Database-as-a-Service. Western Union relies on Couchbase and AWS for scalability in the cloud, greater developer agility and to deliver a seamless customer experience.

We are very proud of this partnership and excited Western Union has turned to Couchbase for its modernization strategy. Another new win was a Fortune 500 company Halliburton, which is one of the world's largest oilfield services companies.

Halliburton chose Couchbase for our unique mobile and data synchronization capabilities as they seek to automate various processes and workflows, aiming to achieve new business opportunities and efficiencies across well sites and drilling operations.

With Couchbase the Halliburton completion tools field mobile application will be able to synchronize data across devices with limited to no internet connectivity, increasing efficiency by preventing both data duplication and redundancy of efforts. We are thrilled that they chose us for this exciting application.

Another new customer during the quarter was a leading website hosting company. This customer was looking for a flexible solution to help deploy next-generation e-commerce capabilities, including online service ordering and payments for its customer base. They needed a platform that can handle complicated use cases for business critical applications.

This customer selected Couchbase Capella over a cloud service provider due to our better performance, better developer experience and cost efficiency. As we look towards Q2 and the rest of the year, I'd be remiss to not acknowledge the increased volatility across the macro environment.

One of our core values is to attack hard problems, driven by customer outcomes. Despite the volatility, we have worked hard to put Couchbase in a great position and I feel as confident as ever in our long-term prospects. And here are four reasons why.

First, from a product perspective, as we have just discussed, we continue to bring new products and capabilities to market and our portfolio is growing and its ability to meet the complex wide-ranging demands of the largest enterprises.

Customers choose Couchbase in part due to our ability to enable applications across a wide spectrum of deployment and consumption models from cloud to on premise, from the datacenter to edge, and everything in between. Our differentiated technology remains at the heart of who we are and we continue to aggressively invest in our innovation agenda.

Second, with respect to cloud, industry analysts are forecasting that cloud database management service revenue will account for 50% of the total database market revenue this year. And with Capella, we are now well positioned to fully participate in this opportunity.

Cloud is at the heart of most our customer conversations and Capella continues to gain momentum, as evidenced by robust big deal momentum and strong pipeline generation across all regions. We believe Capella is well on its way towards becoming an important contributor to our business this year.

Third, digital transformation initiatives continue to receive the highest levels of attention and prioritization across organizations. Our 5th annual global survey of 650 IT leaders found that on average enterprises plan to increase their investment in digital transformation by 46% over the next 12 months.

I am consistently hearing this from business leaders and our conversations with customers increasingly revolve around how Couchbase can playing a central role in driving multi-year strategic transformations, lending visibility and confidence to our outlook. And fourth, as a CEO of Couchbase, I have the honor of leading a great team of people.

While it may not be visible on an income statement, the resiliency and creativity of our teams inspires me every day. I’m so proud of how our world-class team came together, supported our customers and one another, adapted to constantly changing conditions and executed over the past couple of years.

Nothing prepares us for the future more than being battle tested. My confidence in our ability to persevere and innovate in an exciting, dynamic and at times volatile market is stronger today than it's ever been.

Before I hand the call over to Greg, I want to share my excitement about the announcement that Huw Owen has been promoted to be our new Chief Revenue Officer. Huw has served as a leader of our international sales business for nearly four years and knows our business inside and out.

He has already played a significant role in accelerating growth for Couchbase. In fact, during his tenure, he has driven sales execution and increased international air ARR by nearly 200%.

Huw’s background combined scaling sales at high-growth companies, such as good technology with operational sales excellence at leading enterprise technology companies like Veritas, Symantec and Lenovo and makes them well suited to take Couchbase to the next level of growth.

Huw was an ideal successor to step into the CRO role and I am pleased to welcome him to the management team. Succession planning is part of maintaining a world-class team and with our strong and healthy business foundation, I am certain that now is the right time to make this transition.

I'd like to thank Denis Murphy for his many contributions to Couchbase as CRO over the past three years. He has led the field organization with incredible dedication and focus. Throughout the pandemic, no less and we wish him well in his future endeavors. Dennis will be with us through the end of this month to aid with the transition.

Thanks to him, sales is in a great position to begin a new chapter under Huw. In conclusion, we had a great start to the year. We continue to execute across all facets of the business. And the secular drivers supporting our growth trajectory remains strong. I believe this will be a landmark year for Couchbase.

I'd like to thank our team for their effort and focus in starting off the New Year on solid footing. I'd also like to thank our customers and partners for placing their trust in Couchbase. All of whom are our pleasure to serve. With that, I'll hand the call over to Greg to walk you through our results in more detail.

Greg?.

Thanks, Matt. And thanks everyone for joining us. We had a great start to the year. We've seen a continued robust demand environment. And we're pleased to have outperformed our previous outlook. I'll now walk you through our first quarter financial results in more detail before providing our guidance for the second quarter and full year.

We are thrilled to share that total annual recurring revenue or ARR at the end of the first quarter was $139.7 million, representing 27% growth year-over-year, or 31% growth on a constant currency basis and an acceleration for the third quarter in a row. Revenues for the first quarter was $34.9 million, an increase of 25% year-over-year.

The impact of foreign currency exchange on year-over-year revenue growth was immaterial. Subscription revenue for the first quarter was $32 million, an increase of 21% year-over-year. Professional services revenue for the first quarter was $2.9 million, an increase of 93% year-over-year.

We exited the quarter with 614 customers, an increase of 24 customers from the fourth quarter. Please note, that we changed the way we classify customers, including 11 incremental customers resulting from an attribute change in our customer count requirements starting in fiscal 2023.

Our ARR per customer performance in the first quarter was $227,000, up from $225,000 from the fourth quarter. During the first quarter of fiscal 2023, we revised our ARR definition to measure Capella ARR by annualizing the prior 90 days of actual consumption.

We continue to exclude from ARR revenue derived from the use of cloud products only based on on-demand arrangements and services revenue. The revised methodology had an immaterial impact on ARR. We are pleased to report our dollar based net retention rate continue to exceed 115%.

In discussing the remainder of the income statement, please note, that unless otherwise stated all references to our expenses, results of operations and share count are on a non-GAAP basis. In Q1, our gross margin remained best-in-class at 87.3% as compared to a gross margin of 88% a year ago and 88.7% last quarter.

Turning to expenses, our sales and marketing expenses for Q1 were $24.8 million or 71% of revenue, compared to $20.1 million or 72% of revenue a year ago. We continue to build out our go-to-market function to capture the generational opportunity that we see ahead of us.

Research and development expenses for Q1 were $12.5 million or 36% of revenue, compared to $12 million or 43% of revenue a year ago. We saw a healthy leverage from our R&D investments during the quarter and we capitalized approximately $750,000 of Capella software development, which was previously planned to be an expense.

We expect to see additional leverage as we scale. General and administrative expenses for Q1 were $6.5 million or 19% of total revenue, compared to $4.8 million or 17% of revenue a year ago.

Operating loss for Q1 was $13.4 million or a negative 38% operating margin, compared to an operating loss of $12.3 million or negative 44% operating margin a year ago. Non-GAAP net loss attributable to common stockholders for Q1 was $14.3 million or negative $0.32 per share. Turning to the balance sheet and cash flow statement.

We continue to be well capitalized, ending Q1 with $201 million in cash, cash equivalents and short-term investments. Remaining performance obligations or RPO totaled $159 million at the end of Q1, an increase of 68% year-over-year. Our continued exceptional strength in RPO growth was fueled by significant upsell and renewal deal.

We expect to recognize approximately 60% or $100.7 million of total RPOs revenue over the next 12 months. Operating cash flow for Q1 was negative $8.6 million, while free cash flow was negative $9.4 million or negative 27% free cash flow margin. Now, to conclude the call, I will provide guidance for Q2 and the full year fiscal 2023.

Despite increased macroeconomic volatility our pipeline remains strong. We continue to see strong business momentum, elevated database infrastructure migration activity across our industry and sort of broad-based digital transformation initiatives.

That said, we are monitoring the environment closely, we've continue to see an incremental strengthening of the US dollar resulting in a headwind from foreign exchange exposure. Furthermore, we've historically seen variability with respect to the implementation timing of certain deals, which impacts our revenue visibility.

Accordingly, we are prudently considering these factors into our revenue guidance, even if we see continued upside to our ARR outlook. Clearly a deviation from this assumption would cause us to modify our guidance higher or lower. Keeping that in mind, let's turn to our outlook.

For the second quarter of fiscal 2023, we expect total revenue in the range of $35.8 million to $36 million, therefore year-over-year growth of 21% at the midpoint. We anticipate ARR in the range of $142.5 million to $144.5 million, which represents 25% growth at the midpoint.

I'd add that, we anticipate approximately a 3% negative impact to our ARR growth rate due to foreign currency fluctuations. We expect the non-GAAP operating loss in the range of negative $11.9 million to negative $11.7 million. For the full fiscal year 2023, we are raising our revenue and ARR outlook, while decreasing our operating loss.

We expect revenue to be in the range of $147.2 million and $448.2 million, therefore, a year-over-year growth of 20% at the midpoint. We expect ARR in the range of $160.5 million to $164.5 million or 22% growth at the midpoint.

We note that we anticipate approximately 150 basis point negative impact to our ARR growth rate due to foreign currency fluctuations. And finally, we expect a non-GAAP operating loss in the range of negative $55.2 million to negative $54.2 million.

Our updated guidance reflects the full year impact of the capitalization of Capella software development we discuss a moment ago. Finally, I want to share our thoughts on balancing growth and profitability. As Matt outlined earlier, we have a $60 billion database market ahead of us and we are investing aggressively to become a cloud first company.

Our level of investment is informed by this tremendous market opportunity, while prudently evaluating and managing our cost structure, delivering healthy revenue growth, while improving profitability is a top priority for us.

While fiscal 2023 guidance implies that non-GAAP operating margins will improve by approximately 200 basis points in the second half of the year compared to the first half. Longer term, we are positioning the business to sustain high growth and believe we will have a highly profitable business model as we scale.

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

Operator?.

Thank you. [Operator Instructions] Our first question comes from Matt Hedberg with RBC Capital Markets. You may proceed. .

Great. Thanks for taking my question guys, congrats on the results. Matt, really you had a lot of positive things to talk about with Capella, including the seven figure win and GCP support.

I'm wondering, now that you have some additional data points there, can you talk a bit more about the competitive environment as you add more features and support? And how are your win rates versus other cloud alternatives?.

Hey, Matt. Great to hear from you. Yes, we're very excited about the quarter with respect to Capella. And you mentioned some of the innovations, we're extremely excited to have accelerated the roadmap in key areas, adding additional cloud support like GCP is massive so too is the addition of our mobile platform for growing Capella App Services.

This really opens the aperture pretty significantly for us, previously we’re in market just with Server on AWS and this is going to really add a lot in terms of our ability to go add value to customers.

We're seeing demand across the pipeline, top of funnel and shared some statistics on trials and clusters and obviously some big wins, we are very competitive with our Capella offering.

It provides a level of simplicity and productivity for the developer, which quite frankly our previous offering didn't at the same level, but maintains the scale and performance for modern applications and does all that with what we think is the best TCO in the industry. So we continue to work aggressively to add capabilities.

But the leading indicators pipeline discussions with our largest customers, discussions with prospects and they really appreciate the value proposition of Capella and the ability to get the full power and benefit of Couchbase with a more simplified consumption model and we're going to continue to put a lot of wood behind that area as we go forward. .

That's great. And then maybe as a follow-up, you just mentioned simpler consumption models and you're bringing in a new CRO that you highlighted Huw.

With sort of the ramp in Capella, what are some of the biggest things that you think the go-to market model could benefit? Because to me, it feels like you have the increased ability to land quicker than maybe you had previously.

Maybe just Huw’s focus with sort of the success of Capella right now?.

Yeah. Let me take a moment to talk about the transition and then I’ll get into what we're focused on on a go-forward basis. First off, I'd like to thank Dennis for his service over the last three years. Now you've known the company for a while and I think you can appreciate that we're just a different company than we were three years ago.

And not only has he performed in that role, but he has helped me prepare the company and the organization and Huw in particular for this important succession. This is something that we've been planning for and making sure that Huw and the organization is ready at the right time and we're very confident in the decision and now being the right time.

A big part of that stems from the very question you are asking on what do we need to drive? Huw’s experience includes scaling growth technology companies, but also operating at a level of detail and scale that few revenue leaders in the world have running over $1 billion businesses.

I think that focus and fundamentally understanding the value proposition of Couchbase to developers and architects like is going to enable them to lead the field organization to continue with areas of strength, like land and expand.

But quite frankly, improving in the areas that we know we can get better, which is new customer acquisition and leveraging Capella as a way to do that. And quite frankly, Matt, the region that Huw has the leading has been pacing ahead of the company on those important metrics for some time.

New logos and early cloud traction and I expect that recipe is going to be applied in a more consistent way across the world and we're going to be well positioned to improve as we go forward. .

Thanks guys. .

Thank you. Our next question comes from Kash Rangan with Goldman Sachs. You may proceed. .

Hi, thank you very much, and congrats on the quarter.

Matt, I wouldn't mind if you could just take a step back and evaluate your go to market for Capella and also from a product architecture standpoint, considering the service was released not too long ago, but what are you uncovering as to where the market is resonating with Capella, obviously, the ease of deployment, the cost model, all those stuff is well appreciated.

But are you starting to see some clear patterns, maybe you don't, maybe you do, of use cases that are a slam dunk for Capella that you could envision this being able to uncover different market segment and different set of market needs that are unmet? Or do you think it's more of a consumption model that's really the differentiation that it's meant to really go after different set of customers that are not mission critical, but could be mission critical in the future.

What are the things that you've learned from the launch and what customers are telling you? Thank you so much. .

Hey, Kash. Let me peel that apart. I'm going to start with kind of product first, and how we think about architecture, and quite frankly, how we've carefully build the solution in what we think is the best way possible. You and I have spent a lot of time on the unique differentiators of Couchbase under the hood.

And the way that we've architected the platform for scale and performance, single integrated solution from cloud to edge, sequel compatibility, fundamental to how we think about things, layering in services like Full Text Search and Analytics and really having a robust platform so that we can confidently say that we are able to serve enterprises and their mission critical applications unlike anyone else.

What Capella allows us to do is, bring all those benefits for those customers in a very simple way, and I can tell you how refreshing it is when we hear from customers, I want the full power of Couchbase. I just don't want to spend any time running and managing it, and now you all can do that for me.

Now Kash, quite frankly, another big part of our innovation is addressing these developer experience and that's everything from the UI to documentation to expanding our developer community and the other integration that are important to run alongside the database.

And so we're working on connectors and the things like GraphQL and other important capabilities that we know developers are really interested in and allow them to build and run applications that much more flexible and with agility. That value proposition resonates.

I think what we're so excited about is our fundamental architecture has differentiation that we believe we can sustain over time. And as we continue to build out Capella with the accelerated roadmap, we have the potential to remain the cloud to edge leader with the consumption model that is industry leading from a total cost of ownership perspective.

And how we're going to utilize underlying resources and the things that we're doing within our core technology like new storage engines are all along the lines of moving from the best enterprise database to the best enterprise cloud database.

Now, in terms of users, we're maniacally focused on the developer with all that ease of use, but at the same time, we can talk to architects about the scale and performance advantages that we maintain.

I will say Kash that we are seeing an ability to go down market more effectively than we had previously, and I think equally important, we talked about the most mission critical applications, we believe that we are able to increase the breadth of applications that we can serve for enterprise and mid-market customers.

And so we are not only opening our total addressable market with new regions and new cloud and new services, but doing that from an application perspective and customers love that, they want to do more with less, they see Couchbase as a platform that they can invest in.

We're now making it easier for them to use and run and couldn't be more excited about how we go forward. Now, we're clearly investing in the go-to-market along the way.

Everything from managing trials and creating a great customer experience and managing through a different type of pipeline that is very active and empowering our field organizations with the intelligence on where people are in that cycle, while at the same time increasing the amount of dedicated resources that we have in the field and in other parts of the company to get the most out of our offering.

So, a lot behind your question, but we are very excited about the trajectory and what we're seeing in the business. .

Thank you so much, Matt. And Greg one for you. As you approach the next couple of years, what should we think about as being the key drivers of profitability granite that you definitely had operating income outcome, significantly better than what we all expected, but just wanted to get your thoughts -- refined thoughts on that? Thank you. .

Yeah. Hey, Kash. Yeah, I think part of it goes back to saying Capella is going to -- continue going to drive the way for us, but, look, we're in a large and growing TAM. We're going to be -- continue to invest where we see opportunities, both on the R&D go-to-market side.

We got an accelerating growth story now, so I think that's going to help us obviously get there. We're going to continue to push forward, we'll do believe we'll see sales efficiency and productivity coming out of that organization and we will obviously continue to make the move towards profitability, cash flow profitability.

We obviously haven't set long-term targets, we expect that in the next year or so we'll do an Investor Day and layout those targets for you, but you can be rest assure that we're investing for growth, but has to be mindful of profitability at the same time.

And we are fully funded from a capital perspective to take this on over the next several years. So I'd say, more to come in terms of the long-term model, we are very mindful of that as we go forward here. .

Wonderful. Thank you so much. .

Thank you. Our next question comes from Jason Ader with William Blair. You may proceed. .

Yeah. Thank you. Hey, guys. First question is on COVID, COVID impacted verticals. We've all been since over the last few months and like every seats taken, so how is that business trending? Has it returned to kind of pre-COVID levels? Any color there would be helpful. .

Yeah. Hey Jason. It's Greg. Good to hear from you. Yeah, look, obviously -- look, you saw we put up a strong Q1, continuing to see growth acceleration -- acceleration into fiscal ‘23 and obviously we're going to continue to push for it going forward. We are -- our sales team is getting back out on the road.

We're trying to -- we actually are having our first in-person sales sort of boot camp here on site this week right to get people back in the headquarters and train and going. So that's all helping. And then as far as the customers go we are seeing a pretty healthy return to normalcy.

I would say we're close to sort of pre-COVID levels that we have been ever since that began, and that's what's generating the growth rate that you're seeing today.

I would also go back to the IPO time we laid out the plan that we were being impacted by COVID and this was going to wane over the next several quarters and we are going to get back to pre-COVID growth levels and that's exactly what we're seeing right now.

So we're excited about that cohort, but we're also excited about the rest of it continue to be healthy. .

Great. And then maybe one for you, Matt.

Do you see -- just from a product standpoint, do you see your sequel like architecture as a competitive advantage, especially when you think about connectivity to data warehouse and BI tools?.

Without question, Jason, I think it's been a key part of our architecture and mindset for many years. In fact, we continue to rack up patents specific to sequel and our implementation and our ability to make the life easier for developers that are writing applications.

And we think it's really important, it's going to allow enterprises to do more with their existing people and drive not just modern applications that help them re-platform of legacy solutions in a very efficient way. So without question, we think we're highly differentiated there and continue to make that a point of emphasis as we go forward. .

And do you see customers using some of those sequels like the BI tools and as such on your -- kind of in OP analytics, operational analytics?.

Yeah, no question. When I talked about the developer experience and integrations, making it easy to move data from an application that we're powering into other analytical solutions has been a big point of focus and in every release we increased the number of connectors and integrations with the latest and greatest analytics systems and others.

As a matter of fact, we talked about our 7.1 release had a lot of features around analytics, and particularly our operational analytics, where you can run analytic based queries directly on the data in real time of the application that we're powering.

So we spent a lot of time with our customers, Jason, understand their environments, understanding their technical stack. What role do we uniquely play and then how do we participate in a kind of overall solution perspective with other elements of the stack. So no question about it.

We lean into those conversations quite a bit and it's going to continue to drive our development as we go forward. .

Thanks guys. Good luck. .

Thanks, Jason. .

Thank you. Our next question comes from Sanjit Singh with Morgan Stanley. You may proceed. .

Thank you for taking the questions and congrats Matt and Greg on the best quarter yet I think I've seen and congrats to the entire team on a great start to the year. I wanted to talk a little bit about the quarter itself and to what extent the theme of your script a lot around Capella.

Was Capella kind of the driver of the extremely solid ARR results this quarter? And maybe you could start there and then I had a follow-up. .

Sanjit, we appreciate the comments and very proud of the team, but we talked about there being many layers to grow for Couchbase and I think that been consistent in our conversation for some time.

Greg talked about some return of industries that are important to us, getting back to sales efficiency that we've proven ourselves before and then layering in cloud on top of that. As I reflect on the quarter, I think every one of those had a factor in our results. Very healthy renewals, large expansion, but without question, Capella plays a role.

We continue to grow that business, we're excited about the results, as well as the leading indicators, but I think another big part of the Sanjit is, customers thinking about the right time for them to move into Capella and when they're making long-term investments there's not a conversation that we're having that doesn't involve a win around Capella migration and moving new applications into it.

At the same time, if you look at some of the pipeline generation. I think we're benefiting from a solution in a go-to market model that we have it. So I think it played a big role and I think it's going to play an even bigger role as we go forward. .

Yeah. So let's talk a little bit about that bigger role of going forward. If I think of kind of the classes of opportunity ahead for the company and ahead for Capella, if I sort of organize them by systems of engagement, which has been sort of bread and butter, systems of intelligence, which you guys have also had a play in.

And then frankly the relational opportunity with some -- the update to Couchbase Server on relational migrations, where do you see kind of the near-term opportunity for Capella in that sort of organizational framework? And what do you think is may take some time to see some of the fruits of the effort, the sales efforts there?.

Yeah. Sanjit it's a pretty sophisticated question. I think when I think about the application types, source of true, system of record, relational offload, I sort of separate the Couchbase value proposition and our flexible beta scheme and our underlying architecture from the delivery and consumption mechanism of Capella.

So I think the reality is, with Capella we're going to be able to get after all of those that you talked about. And I think it's going to depend on the particular agenda of the customer base on which one they want to go with first.

Right? If I think about the demand environment, we have customers that are leaning into digital transformation in a more aggressive way than they ever had, they're playing offense. They're running modern applications and they are building things from the ground up that our systems of engagement, source of record based applications.

We had another set of customers that may be wary of the environment and more prudent with their spend, they may be thinking more of how do I do more with less. And we can shift and have a very compelling conversation with them about TCO. The reality is -- and relational offload.

And the reality is, Capella can be a weapon for us in both of those circumstances, because we've built the database in such a way that we're now enabling it to be consumed but not losing any of the underlying attributes of the core platform from cloud to edge.

So we think the total addressable opportunity for Capella is immense, and the fact that we've taken our time to build it the right way and stayed committed as an end-to-end platform is going to serve us well as we go forward. .

Understood and very encouraging. Congrats guys. .

Thanks, Sanjit..

Thank you. Our next question comes from Raimo Lenschow with Barclays. You may proceed with your question. .

Thank you, and congrats from me as well. Great to see the acceleration. Matt you talked about some of the aspects that drive the growth in the future in terms of developer product, et cetera, where are we on the other thing that we haven't discussed yet is the reference base -- referenceable customers with deployment at scale.

Where are we on that journey for Capella? Could you speak to that please? And then I have a follow-up for Greg. .

Can you clarify -- are you talking about when we're going to have Capella customers at scale talking about the success they’ve had?.

Yeah, correct. Like, if you look at what you kind of basically won is like, people from industry saying like, oh, we're using it, look at it and then it becomes like more -- a big pumps mainstream them. .

Yeah, look, I think the reality is, we have a lot of customers that are doing pretty significant things with Capella and we're having very encouraging dialogs with some of our largest customers. You can appreciate that there is always the delicate nature of asking customers to talk about mission-critical applications.

And unfortunately not every single one of our customers is prepared to do it when they're realizing that value.

I do think that Western Union is an example of a customer that has deployed Couchbase at massive scale and thinking about not just the applications they have running but displacing other database solutions and moving more and more workloads into Capella. So we're going to provide those examples as we go.

And it's not just large enterprises, I think what we really want to help the market understand is the value that developers are getting out of it as well. So it's a point of focus for us, we're going to continue to serve those up as we have them. The great thing is, we don't believe that there's going to be a shortage of example.

This is going to be the efficiency at which we can provide them at the time they're seeing that value. .

Yeah. Okay, perfect. It makes sense.

And then, Greg, last quarter you -- when you guided, you were one of the first to kind of point out that there is volatility in the market, if you think about the guidance now on how comfortable you are with kind of raising the guidance which you did kind of well done, like how are you feeling about the macro impact to your thinking from here. .

Yeah, Raimo. So first of all, I'd say, look, we're very comfortable with our guidance. As you know, we obviously prepare guidance that we can at least deliver on that and we're going to continue to hopefully exceed that if we do our jobs well.

But we -- so we're trying to guide smartly, prudently, but understanding there is this macroeconomic environment that has some uncertainties in it, so we get a good amount of visibility based on our business model today and then -- so we're applying that plus some of this prudence into the guidance.

So again, we feel good about it, but we're watching closely and we haven't seen materially impacts to date, but we also know that there is -- that there is a level of uncertainty out there. So we've kind of tried to build that balance in there into our guidance as we go out into the future, but we feel good about the guidance that we provided today. .

Okay. Got it. Well done. Thank you. .

Thanks. .

Thank you. [Operator Instructions] Our next question comes from Brad Reback with Stifel. You may proceed. .

Great, thanks very much. Matt, as you look at the hiring plan for the remainder of this year. Have you guys the modified it at all from what the original plan was for the operating side this fiscal year? Thanks. .

Hey, Brad. How are you? Look, we think about our hiring plan on a very regular basis. So we go into the year with sort of a set plan and then we adapt as we deem necessary. I don't think there's any fundamental shift to how we've started out the year, we're in great shape with field capacity. We continue to put more into Capella dedicated resources.

On our development side of the organization, we're investing in things like university hiring program.

So I think from an overall spend perspective, we understand what the levers are, Brad, and you've seen us demonstrate that over time that we can lean in or pull back a little bit as we deem necessary, but I'd say we're generally speaking aligned to what we thought about before, but making sure that we take every investment and every resource that we put into the business with the utmost seriousness and ensuring that we're putting them in the right places.

So outside of those in a normal sort of operational fluctuation, I'd say, we're pacing as planned.

Greg?.

Yeah, Brad. I’d just add one thing. So aligned with everything the Matt said, when we run the business we run the business to a $1 target, if you will, to an OpEx target. We don't necessarily drive to a head count target and we let our leaders decide how they want to allocate those dollars.

So for example, there will be our new Senior Vice President here and came in, he thought as we needed a better sort of feeder system and Matt alluded to this university hiring, so he's got out and really taken some more senior roles that were in the budget. And out of university hiring element.

So you will actually I think you'll see like the head count picked up a bit as we go forward as we add more resources at lower dollar and create a sort of a better pyramid for the engineering organization, but again, from a pure dollar perspective, we're making the right investments and we're going to manage that extremely closely given what's going on in the environment.

.

That's great. Thanks very much thank you. .

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Matt Cain for any further remarks. .

Thanks, operator. To recap, we had a great quarter and a strong start to the fiscal year, highlighted by the third straight quarter of accelerating ARR growth. And I am excited about our opportunity with Capella this year, as well as some very big trends in our favor like digital transformation, acceleration of the cloud and innovation at the Edge.

Couchbase is in a great position. We look forward to seeing you all back here next quarter. Thank you. .

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