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Confluent Announces First Quarter 2022 Financial Results

·19 min read
  • Total revenue of $126 million, up 64% year over year

  • Confluent Cloud revenue of $39 million, up 180% year over year

  • Remaining performance obligations of $551 million, up 96% year over year

  • 791 customers with $100,000 or greater in ARR, up 41% year over year

MOUNTAIN VIEW, Calif., May 05, 2022--(BUSINESS WIRE)--Confluent, Inc. (NASDAQ: CFLT), the data streaming platform to set data in motion, today announced financial results for its first quarter of 2022, ended March 31, 2022.

"Data streaming is gaining momentum and adoption as a foundational component to delivering real-time customer experiences and optimized operations," said Jay Kreps, co-founder and CEO, Confluent. "With a best-in-class product and differentiated customer go-to-market model, Confluent continues to become the de facto way organizations start and scale their data in motion journey. This has driven 64% revenue growth year over year, a record number of net new customer additions and a fourth consecutive quarter with dollar-based net retention rate of greater than 130%."

"We delivered a strong first quarter exceeding the high end of our guidance on all metrics. RPO growth accelerated year over year and Confluent Cloud revenue grew 180% year over year, with a world-class dollar-based net retention rate for Confluent Cloud of greater than 150%," said Steffan Tomlinson, CFO, Confluent. "Given our strong unit economics and continued momentum, we are raising our 2022 guidance, and we remain committed to driving high growth and annual improvement in both non-GAAP operating and free cash flow margin."

First Quarter 2022 Financial Highlights

(In millions, except per share data and percentages)

Q1 2022

Q1 2021

Y/Y Change

Total Revenue

$126.1

$77.0

64%

Remaining Performance Obligations

$551.1

$280.9

96%

GAAP Operating Loss

$(111.5)

$(45.1)

$(66.4)

Non-GAAP Operating Loss

$(51.7)

$(31.5)

$(20.2)

GAAP Operating Margin

(88.4%)

(58.6%)

(29.8) pts

Non-GAAP Operating Margin

(41.0%)

(40.9%)

(0.1) pts

GAAP Net Loss Per Share

$(0.41)

$(0.41)

-

Non-GAAP Net Loss Per Share

$(0.19)

$(0.29)

$0.10

Net Cash Used in Operating Activities

$(55.0)

$(20.0)

$(35.0)

Free Cash Flow

$(58.4)

$(21.2)

$(37.2)

A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided in the financial statement tables included in this press release. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section titled "Non-GAAP Financial Measures."

Financial Outlook
For the second quarter and fiscal year 2022, Confluent expects:

Q2 2022 Outlook

FY 2022 Outlook

Total Revenue

$130-$132 million

$554-$560 million

Non-GAAP Operating Margin

~ (41%)

~ (38%)

Non-GAAP Net Loss Per Share

$(0.21)-$(0.19)

$(0.79)-$(0.73)

A reconciliation of forward-looking non-GAAP operating margin and non-GAAP net loss per share to the most directly comparable GAAP measures is not available without unreasonable effort, as certain items cannot be reasonably predicted because of their high variability, complexity and low visibility. In particular, the measures and effects of our stock-based compensation expense specific to our equity compensation awards and employer payroll tax-related items on employee stock transactions are directly impacted by the timing of employee stock transactions and unpredictable fluctuations in our stock price, which we expect to have a significant impact on our future GAAP financial results.

Conference Call Information
Confluent will host a video webcast to discuss the company’s first quarter 2022 results as well as its financial outlook today at 4:30 p.m. Eastern Time/1:30 p.m. Pacific Time. Open to the public, investors may access the webcast, earnings press release, supplemental financial information, and investor presentation on Confluent’s investor relations website at investors.confluent.io before the commencement of the webcast. A replay of the webcast will also be accessible from Confluent’s investor relations website a few hours after the conclusion of the live event.

Confluent uses its investor relations website and may use its Twitter, LinkedIn, and Facebook accounts as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Forward-Looking Statements
This press release and the earnings call referencing this press release contain forward-looking statements including, among other things, statements regarding our financial outlook, including our commitment to driving accelerating annual improvements in our non-GAAP operating margin and free cash flow margin and achievement of positive non-GAAP operating margin by the fourth quarter of fiscal 2024; the potential growth runway for Confluent Cloud; ability for Confluent Cloud to provide cost savings for users and customers; increased adoption of our platform and data streaming in general; our ability and position to capitalize on the shift to cloud; the degree of market acceptance of our products; our ability to sustain relationships and integration with cloud providers; growth in and growth rate of revenue, including Confluent Cloud revenue, customers, remaining performance obligations and dollar-based net retention rate; our market opportunity; our go-to-market strategy; our product differentiation and market acceptance of our products; our ability to improve margins, on an annual basis or at all; our ability to meet near-term and mid-term financial targets; our potential for value creation; our investment priority and philosophy; and our overall future prospects. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "seek," "plan," "project," "target," "looking ahead," "look to," "move into," and similar expressions are intended to identify forward-looking statements. Forward-looking statements represent our current beliefs, estimates and assumptions only as of the date of this press release and information contained in this press release should not be relied upon as representing our estimates as of any subsequent date. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) the impact of the ongoing COVID-19 pandemic on our business, as well as our customers, prospects, partners, and service providers, (ii) our ability to sustain and manage our rapid growth, (iii) our limited operating history, (iv) our ability to attract new customers and retain and sell additional features and services to our existing customers, (v) our ability to increase consumption of our offering, including by existing customers and through the acquisition of new customers, and successfully add new features and functionality to our offering, (vi) our ability to achieve or sustain profitability and improve margins annually or at all, (vii) the estimated addressable market opportunity for our offering, (viii) our ability to compete effectively in an increasingly competitive market, including achieving market acceptance over competitors and open source alternatives, (ix) our ability to successfully execute our go-to-market strategy and initiatives, (x) our ability to attract and retain highly qualified personnel, (xi) breaches in our security measures or unauthorized access to our platform, our data, or our customers’ or other users’ personal data, (xii) our reliance on third-party cloud-based infrastructure to host Confluent Cloud, and (xiii) general market, political, economic, and business conditions. These risks are not exhaustive. Further information on these and other risks that could affect Confluent’s results is included in our filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2021, and our future reports that we may file from time to time with the SEC. Additional information will be made available in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 that will be filed with the SEC, which should be read in conjunction with this press release and the financial results included herein. Confluent assumes no obligation to, and does not currently intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Financial Measures
This press release includes the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (research and development, sales and marketing, general and administrative), non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, non-GAAP net loss per share, free cash flow, and free cash flow margin. We use these non-GAAP financial measures and other key metrics internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. We believe these non-GAAP financial measures, when taken collectively, may be helpful to investors because they provide consistency and comparability with past financial performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. However, non-GAAP financial measures have limitations as an analytical tool and are presented for supplemental informational purposes only. They should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. In particular, other companies, including companies in our industry, may report non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (research and development, sales and marketing, general and administrative), non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, non-GAAP net loss per share, free cash flow, free cash flow margin, or similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures. Further, free cash flow is not a substitute for cash used in operating activities. The utility of free cash flow is limited as such measure does not reflect our future contractual commitments and does not represent the total increase or decrease in our cash balance for any given period. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, as presented below. We define non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (research and development, sales and marketing, general and administrative), non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, and non-GAAP net loss per share as the respective GAAP balances, adjusted for, as applicable, stock-based compensation expense; employer taxes on employee stock transactions; common stock charitable donation expense; amortization of debt issuance costs; and income tax effects associated with these adjustments. We define free cash flow as net cash used in operating activities less capitalized internal-use software costs and capital expenditures and free cash flow margin as free cash flow as a percentage of revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the performance of core operations and future ability to generate cash that can be used for strategic opportunities or investing in our business.

Other Business Metrics
Remaining performance obligations ("RPO")
represent the amount of contracted future revenue that has not yet been recognized as of the end of each period, including both deferred revenue that has been invoiced and non-cancelable committed amounts that will be invoiced and recognized as revenue in future periods. RPO excludes pay-as-you-go arrangements. RPO may also fluctuate due to a number of factors, including the timing of renewals, average contract terms, seasonality, and dollar amount of customer contracts. RPO as a metric is not necessarily indicative of future revenue growth because it does not account for the actual timing of customers’ consumption or future expansion.

Customers with $100,000 or greater in annual recurring revenue ("ARR") represent the number of customers that contributed $100,000 or more in ARR as of period end. We define ARR as the revenue customers contractually committed to over the following 12 months assuming no increases or reductions in their subscriptions. ARR excludes services and pay-as-you-go arrangements. Similar to RPO, ARR as a metric is not necessarily indicative of future revenue growth because it does not account for the actual timing of customers’ consumption or future expansion. For purposes of determining our customer count, we treat all affiliated entities with the same parent organization as a single customer and include pay-as-you-go customers. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.

Dollar-based net retention rate ("NRR") as of a period end is calculated by starting with the ARR from the cohort of all customers as of 12 months prior to such period end ("Prior Period Value"). We calculate the ARR from these same customers as of the current period end ("Current Period Value"), which includes any growth in the value of subscriptions and is net of contraction or attrition over the prior 12 months. Services and pay-as-you-go arrangements are excluded from the calculation of ARR. We then divide the Current Period Value by the Prior Period Value to arrive at our dollar-based NRR. The dollar-based NRR includes the effect, on a dollar-weighted value basis, of our subscriptions that expand, renew, contract, or attrit, but excludes ARR from new customers in the current period. Our dollar-based NRR is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.

About Confluent
Confluent is the data streaming platform that is pioneering a fundamentally new category of data infrastructure that sets data in motion. Confluent’s cloud-native offering is the foundational platform for data in motion – designed to be the intelligent connective tissue enabling real-time data, from multiple sources, to constantly stream across the organization. With Confluent, organizations can meet the new business imperative of delivering rich, digital front-end customer experiences and transitioning to sophisticated, real-time, software-driven backend operations.

Confluent, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

March 31,

December 31,

2022

2021

ASSETS

Current assets:

Cash and cash equivalents

$

1,047,589

$

1,375,932

Marketable securities

943,048

640,085

Accounts receivable, net

124,504

137,491

Deferred contract acquisition costs

28,433

27,646

Prepaid expenses and other current assets

51,675

44,919

Total current assets

2,195,249

2,226,073

Property and equipment, net

18,486

14,428

Operating lease right-of-use assets

34,814

37,281

Deferred contract acquisition costs, non-current

54,001

51,178

Other assets, non-current

14,951

13,769

Total assets

$

2,317,501

$

2,342,729

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

8,151

$

7,591

Accrued expenses and other liabilities

71,924

98,974

Operating lease liabilities

8,540

9,236

Deferred revenue

235,119

220,920

Liability for early exercise of unvested stock options

6,995

11,467

Total current liabilities

330,729

348,188

Operating lease liabilities, non-current

29,674

31,645

Deferred revenue, non-current

30,565

25,557

Convertible senior notes, net

1,081,637

1,080,701

Other liabilities, non-current

8,827

6,357

Total liabilities

1,481,432

1,492,448

Stockholders’ equity:

Preferred stock

-

-

Class A common stock

1

1

Class B common stock

2

2

Additional paid-in capital

1,703,449

1,599,962

Accumulated other comprehensive loss

(5,542

)

(830

)

Accumulated deficit

(861,841

)

(748,854

)

Total stockholders’ equity

836,069

850,281

Total liabilities and stockholders’ equity

$

2,317,501

$

2,342,729

Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended March 31,

2022

2021

Revenue:

Subscription

$

113,920

$

67,992

Services

12,219

9,036

Total revenue

126,139

77,028

Cost of revenue:

Subscription(1)(2)

33,603

15,757

Services(1)(2)

12,174

8,081

Total cost of revenue

45,777

23,838

Gross profit

80,362

53,190

Operating expenses:

Research and development(1)(2)

57,661

24,313

Sales and marketing(1)(2)

106,702

58,509

General and administrative(1)(2)

27,481

15,512

Total operating expenses

191,844

98,334

Operating loss

(111,482

)

(45,144

)

Interest income

566

844

Other expense, net

(1,382

)

(336

)

Loss before income taxes

(112,298

)

(44,636

)

Provision for (benefit from) income taxes

689

(110

)

Net loss

$

(112,987

)

$

(44,526

)

Net loss per share, basic and diluted

$

(0.41

)

$

(0.41

)

Weighted-average shares used to compute net loss per share, basic and diluted

272,890,829

108,731,605

(1) Includes stock-based compensation expense as follows:

Three Months Ended March 31,

2022

2021

Cost of revenue - subscription

$

5,313

$

975

Cost of revenue - services

1,862

544

Research and development

20,085

3,511

Sales and marketing

21,062

4,976

General and administrative

9,047

3,347

Total stock-based compensation expense

$

57,369

$

13,353

(2) Includes employer taxes on employee stock transactions as follows:

Three Months Ended March 31,

2022

2021

Cost of revenue - subscription

$

333

$

-

Cost of revenue - services

77

-

Research and development

1,039

121

Sales and marketing

680

103

General and administrative

310

39

Total employer taxes on employee stock transactions

$

2,439

$

263

Confluent, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended March 31,

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$

(112,987

)

$

(44,526

)

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation and amortization

1,250

787

Net amortization of premiums or discounts on marketable securities

705

505

Amortization of debt issuance costs

936

-

Amortization of deferred contract acquisition costs

8,470

5,535

Non-cash operating lease costs

2,275

2,856

Stock-based compensation, net of amounts capitalized

57,369

13,353

Deferred income taxes

(4

)

(567

)

Other

204

439

Changes in operating assets and liabilities:

Accounts receivable

12,782

5,734

Deferred contract acquisition costs

(12,080

)

(10,866

)

Prepaid expenses and other assets

(7,985

)

(2,355

)

Accounts payable

177

839

Accrued expenses and other liabilities

(22,853

)

1,433

Operating lease liabilities

(2,497

)

(2,721

)

Deferred revenue

19,207

9,565

Net cash used in operating activities

(55,031

)

(19,989

)

CASH FLOWS FROM INVESTING ACTIVITIES

Capitalization of internal-use software costs

(2,509

)

(596

)

Purchases of marketable securities

(403,883

)

(41,688

)

Maturities of marketable securities

95,545

56,763

Purchases of property and equipment

(887

)

(643

)

Other

-

9

Net cash (used in) provided by investing activities

(311,734

)

13,845

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock upon exercise of vested options

16,436

6,215

Proceeds from issuance of common stock upon early exercise of unvested options, net of repurchases

333

7,398

Payments of deferred offering costs

-

(153

)

Payments of debt issuance costs for convertible senior notes

(786

)

-

Proceeds from issuance of common stock under employee stock purchase plan

22,485

-

Net cash provided by financing activities

38,468

13,460

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

(46

)

(8

)

Net (decrease) increase in cash, cash equivalents, and restricted cash

(328,343

)

7,308

Cash, cash equivalents, and restricted cash at beginning of period

1,376,682

37,806

Cash, cash equivalents, and restricted cash at end of period

$

1,048,339

$

45,114

Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the amounts shown above:

Cash and cash equivalents

$

1,047,589

$

44,097

Restricted cash included in other assets, current and non-current

750

1,017

Total cash, cash equivalents, and restricted cash

$

1,048,339

$

45,114

Confluent, Inc.

Reconciliation of GAAP Measures to Non-GAAP Measures

(in thousands, except percentages, share and per share data)

(unaudited)

Three Months Ended March 31,

2022

2021

Reconciliation of GAAP total gross profit to non-GAAP total gross profit:

Total gross profit on a GAAP basis

$

80,362

$

53,190

Total gross margin on a GAAP basis

63.7

%

69.1

%

Add: Stock-based compensation expense

7,175

1,519

Add: Employer taxes on employee stock transactions

410

-

Non-GAAP total gross profit

$

87,947

$

54,709

Non-GAAP total gross margin

69.7

%

71.0

%

Reconciliation of GAAP operating expenses to non-GAAP operating expenses:

Research and development operating expense on a GAAP basis

$

57,661

$

24,313

Less: Stock-based compensation expense

20,085

3,511

Less: Employer taxes on employee stock transactions

1,039

121

Non-GAAP research and development operating expense

$

36,537

$

20,681

Non-GAAP research and development operating expense as a percentage of total revenue

29.0

%

26.8

%

Sales and marketing operating expense on a GAAP basis

$

106,702

$

58,509

Less: Stock-based compensation expense

21,062

4,976

Less: Employer taxes on employee stock transactions

680

103

Non-GAAP sales and marketing operating expense

$

84,960

$

53,430

Non-GAAP sales and marketing operating expense as a percentage of total revenue

67.4

%

69.4

%

General and administrative operating expense on a GAAP basis

$

27,481

$

15,512

Less: Stock-based compensation expense

9,047

3,347

Less: Employer taxes on employee stock transactions

310

39

Non-GAAP general and administrative operating expense

$

18,124

$

12,126

Non-GAAP general and administrative operating expense as a percentage of total revenue

14.4

%

15.7

%

Three Months Ended March 31,

2022

2021

Reconciliation of GAAP operating loss to non-GAAP operating loss:

Operating loss on a GAAP basis

$

(111,482

)

$

(45,144

)

Add: Stock-based compensation expense

57,369

13,353

Add: Employer taxes on employee stock transactions

2,439

263

Non-GAAP operating loss

$

(51,674

)

$

(31,528

)

Non-GAAP operating margin

(41.0

%)

(40.9

%)

Reconciliation of GAAP net loss to non-GAAP net loss:

Net loss on a GAAP basis

$

(112,987

)

$

(44,526

)

Add: Stock-based compensation expense

57,369

13,353

Add: Employer taxes on employee stock transactions

2,439

263

Add: Amortization of debt issuance costs

936

-

Add: Income tax effects and adjustments

13

(671

)

Non-GAAP net loss

$

(52,230

)

$

(31,581

)

Non-GAAP net loss per share, basic and diluted

$

(0.19

)

$

(0.29

)

Weighted-average shares used to compute net loss per share, basic and diluted

272,890,829

108,731,605

The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP measure, for each of the periods indicated (unaudited, in thousands):

Three Months Ended March 31,

2022

2021

Net cash used in operating activities

$

(55,031

)

$

(19,989

)

Capitalized internal-use software costs

(2,509

)

(596

)

Capital expenditures

(887

)

(643

)

Free cash flow

$

(58,427

)

$

(21,228

)

Free cash flow margin

(46.3

%)

(27.6

%)

Net cash (used in) provided by investing activities

$

(311,734

)

$

13,845

Net cash provided by financing activities

$

38,468

$

13,460

View source version on businesswire.com: https://www.businesswire.com/news/home/20220504006293/en/

Contacts

Investor Contact
Shane Xie
investors@confluent.io

Media Contact
Taylor Jones
pr@confluent.io