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01/11 07:32
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call indicates strong growth in key areas like subscription and cloud revenue, along with significant customer additions and DSP adoption. Flink's rapid growth and strategic initiatives like CSP takeouts and sales compensation alignment suggest a positive outlook. Despite some pressure on NRR and GRR, optimistic guidance and operational enhancements provide a positive sentiment, likely leading to a stock price increase over the next two weeks.
Subscription Revenue $270.8 million, grew 21% year-over-year. Growth attributed to strong performance in financial services and sustained momentum with OEM partners.
Confluent Platform Revenue $120.3 million, grew 12% year-over-year. Growth driven by solid performance in financial services and OEM partnerships.
Cloud Revenue $150.5 million, grew 28% year-over-year. Growth impacted by optimization efforts and a reduction in usage by an AI-native customer moving towards self-management.
Operating Margin 6.3%, increased by 570 basis points year-over-year. Improvement due to focus on driving efficiencies across the company.
Adjusted Free Cash Flow Margin 3.9%, increased by 270 basis points year-over-year. Reflects operational improvements and cost management.
Net Income Per Share $0.09, based on 367.3 million diluted weighted average shares outstanding. Reflects improved profitability.
Cash, Cash Equivalents, and Marketable Securities $1.94 billion, reflects strong cash position.
$20k+ ARR Customers 2,497 customers, grew approximately 8% year-over-year. Represents more than 95% of ARR.
$100k+ ARR Customers 1,439 customers, grew 10% year-over-year. Accounts for greater than 90% of ARR.
$1 Million+ ARR Customers 219 customers, grew approximately 24% year-over-year. Reflects strong growth in high-value customer segment.
Net Revenue Retention (NRR) 114%, reflects ongoing consumption headwinds in the cloud business.
Gross Retention Rate (GRR) Close to 90%, indicates strong customer retention.
Flink ARR: Grew approximately 3x over the past 2 quarters, approaching $10 million in ARR. Includes contributions from both Confluent Cloud and Confluent Platform.
WarpStream: Customers increased their spend with Confluent by 30% while decreasing overall CSP infrastructure costs by roughly 50%. Used for high-volume logging and telemetry workloads.
Partner Ecosystem: Expanded partnerships with Infosys, Jio, SCCC, Databricks, EY, and launched an AI accelerator program. Partner-sourced business accounted for over 20% of revenue.
Geographical Revenue: Revenue from the U.S. grew 15% to $164.3 million, while revenue from outside the U.S. grew 29% to $117.9 million.
Operational Enhancements: Improved coverage ratios between AEs, SEs, and post-sales roles, leading to a 40% increase in late-stage pipeline progression. Accelerated build-out of DSP specialist team for multiproduct selling.
Cost Efficiency: Subscription gross margin increased to 81.5%, and operating margin rose to 6.3%. Adjusted free cash flow margin increased to 3.9%.
AI Workloads: Production AI use cases expected to grow 10x this year. Examples include AI agents for regulatory workflows, real-time telescope alerts, and AI-driven search and content generation.
Streaming Market Leadership: Confluent Platform's strength driven by financial services and partner traction. WarpStream consumption grew as customers migrated latency-relaxed workloads from open-source Kafka.
Cloud consumption growth: Larger customers are continuing optimization efforts and adopting new use cases at a slower pace. Consumption growth is expected to remain below prior years for the second half of the year.
AI-native customer shift: An AI-native customer is moving towards self-management of internal data platforms, reducing their Confluent Cloud usage. This will significantly reduce total spending with Confluent starting in Q4.
Cloud revenue growth: Cloud revenue growth rates are expected to be dampened in Q4 due to the reduction in spending by the AI-native customer.
Consumption headwinds: Ongoing consumption headwinds in the cloud business are impacting growth, with month-over-month trends trailing prior years.
Competitive pressures: Efforts to displace CSP streaming offerings are ongoing, but competition remains a challenge despite high win rates.
Operational execution: Efforts to improve coverage ratios and build out DSP specialist teams are ongoing, but these changes will take time to deliver meaningful results.
Consumption Growth Outlook: The company expects consumption growth for Confluent Cloud to remain notably below prior years for the remainder of 2025 due to continued optimization efforts by customers.
Subscription Revenue Guidance: For Q3 2025, subscription revenue is expected to be in the range of $281 million to $282 million, representing approximately 17% growth. For fiscal year 2025, subscription revenue is projected to be between $1.105 billion and $1.11 billion, reflecting approximately 20% growth.
Non-GAAP Operating Margin: The company anticipates a non-GAAP operating margin of approximately 7% for Q3 2025 and 6% for fiscal year 2025.
Adjusted Free Cash Flow Margin: The adjusted free cash flow margin is expected to be approximately 6% for fiscal year 2025.
Cloud Revenue Projections: Cloud revenue as a percentage of subscription revenue is expected to be approximately 56% in Q3 2025 and 55% in Q4 2025.
AI Use Case Growth: Production AI use cases are expected to grow 10x in 2025 across a few hundred customers, expanding from experimentation to broader deployment.
Flink ARR Growth: Flink ARR is approaching $10 million, with growth accelerating for four consecutive quarters. The company expects continued strong contributions from both Confluent Cloud and Confluent Platform.
Partner Ecosystem Expansion: The company plans to deepen partnerships with system integrators and expand its partner ecosystem, which has sourced over 20% of its business. This is expected to fuel growth and accelerate global market penetration.
The selected topic was not discussed during the call.
The earnings call reflects strong growth in AI use cases and Flink, increased deal sizes, and positive momentum in cloud business despite some customer shifts. While management avoided some specifics, the overall sentiment from the Q&A is positive, emphasizing improved execution, strategic partnerships, and product traction. These factors, along with optimistic guidance, suggest a positive stock price movement.
The earnings call indicates strong growth in key areas like subscription and cloud revenue, along with significant customer additions and DSP adoption. Flink's rapid growth and strategic initiatives like CSP takeouts and sales compensation alignment suggest a positive outlook. Despite some pressure on NRR and GRR, optimistic guidance and operational enhancements provide a positive sentiment, likely leading to a stock price increase over the next two weeks.
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