Confluent, Inc. (CFLT Q2 FY2024 earnings call

• Consumption transformation: Vast majority of rollout towards consumption-oriented is complete. New logo growth: Total customer count increased by 320 in Q2, largest sequential increase in two years. High propensity customer lands increased. - Partners: Announced Build with Confluent and Accelerate with Confluent. Crossed more than 40 technology and partner built integrations. Recognized as Partners of the Year by Google and Microsoft. - Customer examples: Vimeo uses Confluent for real-time data flows. A top five mortgage lender in the US uses Confluent in gen AI initiatives. An international e-commerce company in Germany uses Confluent for Gen AI applications.

Subscription revenue grew 27% to $225 million. Confluent Cloud revenue grew 40% to $117 million, accounting for 52% of subscription revenue. Confluent Platform revenue grew 16% to $107.3 million, accounting for 48% of subscription revenue. Subscription gross margin was 80.8%, up 170 basis points. Total customer count was approximately 5,440, up 320 customers sequentially. The 100,000-plus ARR customers continue to contribute greater than 85% of revenue.

• Third quarter 2024: Subscription revenue expected to be in the range of $233 million to $234 million, growth of approximately 23% to 24%; non-GAAP operating margin to break even; non-GAAP net income per diluted share to be $0.05. - Full year 2024: Subscription revenue expected to be approximately $910 million, growth of approximately 25%; non-GAAP operating margin to break even; non-GAAP net income per diluted share to be $0.20; free cash flow margin to break even.

• Digital-native customer base: Continuing consumption volatility within large digital-native customer base impacted NRR. - Confluent Platform business: Growth of Confluent Platform business remains lumpy due to timing of large renewal and expansion deals.

Q: Matt Hedberg asked about whether the quality of new customer additions implies faster expansion from the cohort and about NRR pressure and lumpy Confluent Platform business.

A: Jay Kreps said the percentage of new customer lands in the high propensity segment has gone up. Rohan Sivaram said guidance has considered Confluent Platform's lumpiness and digital-native customers' consumption dynamics.

Q: Sanjit Singh asked about go-to-market transformation, workload quality, and where real-time database fits.

A: Jay Kreps said getting into the right customers and working with real-time database partners.

Q: Raimo Lenschow asked about sales leadership change and Flink adoption.

A: Jay Kreps talked about sales team structure and Flink adoption progress.

Q: Brad Zelnick asked about digital-native customer behavior and federal market sales.

A: Rohan Sivaram and Jay Kreps discussed digital-native customer cost pressure and federal market sales plans.

Q: Jason Ader asked about go-to-market evolution and consumption transition.

A: Jay Kreps talked about consumption transition and using the structure to drive adoption.

Q: Derrick Wood asked about cross-selling DSP and NRR outlook.

A: Jay Kreps and Rohan Sivaram discussed cross-selling traction and NRR medium-term targets.

Q: Rudy Kessinger asked about international growth and sales attrition.

A: Rohan Sivaram and Jay Kreps talked about growth drivers and sales capacity.

Q: Alex Zukin asked about digital-native customer modulation and tailwinds.

A: Jay Kreps discussed digital-native customer optimization and tailwinds.

Q: Kash Rangan asked about transition unlocks and net expansion rates.

A: Jay Kreps and Rohan Sivaram talked about transition progress and net expansion's impact.

Q: Pinjalim Bora asked about Flink use cases and digital-native segment size.

A: Jay Kreps discussed Flink use cases and digital-native segment description.

Q: Ittai Kidron asked about platform revenue and new customer quality.

A: Rohan Sivaram and Jay Kreps talked about platform revenue overlap and new customer quality.

Q: Gregg Moskowitz asked about digital-native customer deliberation and pricing changes.

A: Rohan Sivaram and Jay Kreps discussed digital-native customer dynamics and pricing change impact.

Q: Mike Cikos asked about digital-native customer spend and new logo expansion.

A: Jay Kreps talked about digital-native customer spend and new logo expansion.

Q: Michael Turrin asked about when the foundation for next phase is set.

A: Jay Kreps said the foundation is being set this year with contributions from next year.