MongoDB, Inc. — Q2 FY2020 Form 10-Q
Reporting period: Three and six months ended July 31, 2019; fiscal year ends January 31. Figures are unaudited. Dollar amounts are in millions unless noted.
Business context and performance
MongoDB sells database subscriptions, led by MongoDB Enterprise Advanced and its hosted MongoDB Atlas service, and also provides consulting and training. Subscription revenue was 95% of Q2 revenue. Management said it will continue investing heavily in growth rather than prioritizing near-term profitability or cash flow.
| Metric | Q2 FY2020 | Q2 FY2019 | Six months FY2020 | Six months FY2019 |
|---|---|---|---|---|
| Revenue | $99.4 | $59.6 | $188.8 | $109.8 |
| Subscription revenue | $94.2 | $55.1 | $178.2 | $101.2 |
| Gross profit / margin | $69.2 / 70% | $43.1 / 72% | $130.4 / 69% | $79.5 / 72% |
| Operating loss | $(37.7) | $(27.1) | $(68.2) | $(53.8) |
| Net loss | $(37.3) | $(27.8) | $(70.6) | $(54.3) |
| Net loss per share | $(0.67) | $(0.54) | $(1.28) | $(1.07) |
Financial position and cash flow
- At July 31, cash and cash equivalents were $186.7, short-term investments $249.4, and restricted cash $0.5, totaling $436.6 in cash, equivalents, investments, and restricted cash. Management expected these resources to cover operating and capital needs for at least 12 months.
- Six-month operating cash use was $9.4, versus $24.9 a year earlier; free cash flow, a non-GAAP measure, was negative $11.0 versus negative $26.5. Investing activities provided $30.8, including net maturities of marketable securities, while the Realm acquisition used $38.6 of cash. Financing activities provided $17.7.
- Convertible senior notes had $300.0 principal and a $223.4 net carrying value, with a 0.75% coupon and a 2024 maturity. The notes were conditionally convertible from August 1 through October 31, 2019; no conversion notices had been received as of the filing. The company said it currently intended to settle principal in cash.
- Current deferred revenue was $131.0; total current and non-current deferred revenue was $150.2. Remaining performance obligations were $175.7, with approximately 55% expected to be recognized within 12 months.
Material changes and management commentary
- Q2 revenue grew 67% year over year; six-month revenue grew 72%. Subscription revenue increased 71% and 76%, respectively. Management attributed subscription growth to new customers and expansion among existing customers.
- Atlas-related offerings generated $36.8 of Q2 revenue, versus $10.6 a year earlier; for the six months, revenue was $67.7 versus $17.6. Atlas represented 37% of Q2 revenue, up from 18%. Management attributed lower gross margin primarily to Atlas growth and associated third-party cloud infrastructure costs; total gross margin fell to 70% from 72% in Q2.
- Operating expenses rose with hiring and investment: Q2 sales and marketing increased 46%, research and development 73%, and general and administrative 32%. Headcount was 1,491, up from 1,055 a year earlier.
- MongoDB acquired mobile database company Realm on May 7, 2019 for total consideration of $38.8. The acquisition added $27.3 of developed technology and $10.1 of goodwill; its post-acquisition operating results were not material. A $3.5 tax benefit related to acquisition accounting contributed to the six-month tax benefit.
- Adoption of the new lease standard on February 1, 2019 added lease right-of-use assets and liabilities and reduced opening accumulated deficit by $4.1. The company’s New York office finance lease has an initial 12-year term and estimated aggregate base rent of $87.3.
Outlook, risks, and contingencies
- The filing provides no specific revenue or earnings guidance. Management expected continued operating losses and negative operating cash flows and said future capital needs depend on growth, investment, and other factors.
- Key risks include sustaining customer growth and renewals, competition, converting free users to paying customers, Atlas economics and reliance on third-party cloud providers, security incidents and service interruptions, and execution amid rapid hiring and expansion. Atlas infrastructure commitments may require payment regardless of actual usage.
- Realtime Data’s patent suit alleges infringement of three patents and seeks damages and injunctive relief. In August 2019, the case was stayed pending an appeal concerning invalidation of two asserted patents in a separate action. The company reported no material loss contingency accrual.
- The notes’ conversion feature could require cash settlement and affect liquidity. The company also disclosed lease commitments and ordinary-course indemnification obligations whose maximum potential payments are not determinable.
Most important facts for investors to verify
- Whether Atlas growth can continue while cloud hosting costs and gross-margin pressure remain manageable.
- Whether revenue growth and customer expansion translate into improved operating losses and cash generation.
- The cash and liquidity impact if noteholders convert or require cash settlement, and the terms and future status of the convertible notes.
- Realm integration, acquired-asset assumptions, and the tax benefit’s nonrecurring nature.
- Developments in the stayed Realtime Data litigation and any other material legal or security events.