MongoDB, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended October 31, 2021; fiscal year ends January 31. Financial statements are unaudited. Dollar amounts below are in U.S. dollars.
Business context
MongoDB sells database subscriptions, including its hosted multi-cloud service MongoDB Atlas, and related consulting and training. Subscriptions generated 96% of revenue. Atlas represented 58% of Q3 revenue, up from 47% a year earlier. The company reported more than 31,000 customers, compared with more than 22,600 a year earlier, and headcount of 3,223, up from 2,334.
Key financial metrics
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $226.9 million | $150.8 million | $607.3 million | $419.4 million |
| Gross profit / margin | $158.4 million / 70% | $104.7 million / 69% | $423.6 million / 70% | $293.3 million / 70% |
| Operating loss | $76.8 million | $58.1 million | $210.7 million | $149.9 million |
| Net loss | $81.3 million | $72.7 million | $222.4 million | $191.1 million |
| Basic and diluted loss per share | $1.22 | $1.22 | $3.49 | $3.27 |
- Q3 revenue grew 50%; nine-month revenue grew 45%. Subscription revenue rose 51% and 45%, respectively, primarily from Direct Sales Customers. Atlas-related revenue was $131.1 million in Q3, versus $71.1 million a year earlier.
- Q3 subscription gross margin was 74%, compared with 73%; services gross margin was negative 23%, compared with negative 11%. Management attributed pressure to services personnel costs and China Stock Appreciation Rights Plan expense. Atlas hosting costs increased, while infrastructure efficiencies partly offset that increase.
- Operating expenses rose with investment and hiring: Q3 sales and marketing increased 45%, research and development 51%, and general and administrative 29%. Stock-based compensation was $68.7 million in Q3 and $177.3 million for the nine months.
- For the nine months, operating cash flow was negative $15.3 million, versus negative $24.0 million; free cash flow, a non-GAAP measure, was negative $23.5 million, versus negative $38.4 million. The filing does not present quarterly cash flow figures.
- At October 31, cash and cash equivalents were $748.1 million and short-term investments were $1.055 billion; together with restricted cash, liquidity totaled approximately $1.8 billion. Current assets were $2.055 billion and current liabilities $432.2 million. Management said available cash and investments should fund operations and capital needs for at least 12 months.
- Convertible senior notes had a net carrying amount of $1.136 billion, primarily the 2026 Notes; the remaining 2024 Notes principal was $1.9 million. The 2026 Notes had $1.150 billion principal outstanding. Stockholders’ equity was $662.9 million, compared with a $5.0 million deficit at January 31.
Material changes and unusual items
- The company issued 2.5 million Class A shares in July 2021 at $365 per share, receiving $889.2 million net proceeds. This substantially increased cash and equity and diluted existing holders.
- MongoDB early adopted convertible-instrument accounting guidance effective February 1, 2021. It combined the previously separated equity component of convertible notes into debt, recorded an opening adjustment to equity and reduced reported interest expense by eliminating amortization of debt discount. Prior periods were not restated; year-over-year interest expense comparisons are therefore affected by the accounting change.
- In the nine-month period, holders redeemed $88.1 million principal of convertible notes; the company used $27.6 million cash for part of the principal settlement and issued shares for the remainder. The company subsequently redeemed the remaining 2024 Notes on December 3, 2021, with approximately $1.9 million principal converted into 27,377 shares and the balance settled in cash.
- Net loss increased despite strong revenue growth, principally because sales and marketing and research and development costs increased. The company stated it intends to invest heavily in growth rather than prioritize near-term profitability or cash flow.
Outlook, risks and contingencies
- The filing provides no specific numerical revenue or earnings guidance. Management expects continued investment in sales and marketing, research and development, services, and international expansion, and expects operating losses and negative operating cash flows to continue.
- Management cited customer growth and expansion opportunities: more than 3,900 Direct Sales Customers, more than 29,500 Atlas customers, 1,201 customers with at least $100,000 in ARR or annualized MRR, and net ARR expansion above 120%. Remaining performance obligations were $353.4 million; about 61% was expected to be recognized over the next 12 months.
- Principal disclosed risks include COVID-19 and economic uncertainty; competition and customer IT spending; retaining and expanding customers; cloud infrastructure costs and third-party provider availability; security, privacy and service interruptions; hiring and managing rapid growth; and continued operating losses. Atlas growth may pressure gross margin, and certain cloud capacity commitments require payment regardless of usage.
- Convertible-note conversion conditions were triggered for both note series in Q3. The 2026 Notes were convertible at holders’ option from November 1, 2021 through January 31, 2022; future conversion could require cash settlement and affect liquidity. The 2024 Notes have since been redeemed.
- Realtime Data’s patent complaint was dismissed by the district court in August 2021; Realtime appealed, and its opening brief was filed December 6, 2021. MongoDB said it had not recorded an accrual for legal contingencies, believing a material loss was less than reasonably possible.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of October 31, 2021, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether rapid Atlas and Direct Sales growth continues, and how usage-based revenue, renewals, and expansion translate into recognized revenue and cash collections.
- Whether hosting costs and negative services margins constrain gross-margin improvement as Atlas becomes a larger share of revenue.
- The sustainability and cash impact of elevated hiring, operating expenses, and stock-based compensation, and management’s stated expectation of continued losses.
- The terms, conversion or settlement outcomes, potential dilution, and liquidity effects of the 2026 Notes; also distinguish the completed 2024 Notes redemption from quarter-end balances.
- Progress and potential exposure in the Realtime appeal, alongside security, privacy, third-party cloud, COVID-19, and other disclosed risks.