MongoDB, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Three and nine months ended October 31, 2020. The interim financial statements are unaudited. Fiscal year ends January 31.
Business context and key financial results
MongoDB sells database subscriptions and related consulting and training services. Subscription revenue represented 96% of revenue in both the quarter and nine-month period. MongoDB Atlas, its hosted multi-cloud database service, represented 47% of quarterly revenue and 44% of nine-month revenue. Management said it plans to keep investing in growth rather than prioritize near-term profitability or cash flow.
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $150.8 million | $109.4 million | $419.4 million | $298.2 million |
| Gross profit | $104.7 million | $77.3 million | $293.3 million | $207.6 million |
| Gross margin | 69% | 71% | 70% | 70% |
| Operating loss | $58.1 million | $38.7 million | $149.9 million | $107.0 million |
| Net loss | $72.7 million | $42.4 million | $191.1 million | $113.0 million |
| Basic and diluted loss per share | $1.22 | $0.75 | $3.27 | $2.03 |
Revenue grew 38% in the quarter and 41% over nine months, primarily from subscription growth. For the nine-month period, subscription revenue rose 42% and services revenue 11%. Management attributed subscription growth to both new and existing customers. Atlas-related revenue was $71.1 million for the quarter and $186.4 million for nine months, compared with $44.1 million and $111.8 million, respectively, a year earlier.
Cash flow, liquidity, debt and other metrics
- Cash and investments: $966.8 million in cash, cash equivalents, short-term investments and restricted cash at October 31, 2020, including $551.5 million of short-term U.S. Treasury investments. Management believes available cash and investments are sufficient for at least 12 months.
- Cash flow: Operating cash use was $24.0 million for nine months, versus $20.9 million a year earlier. Capital expenditures were $10.9 million and finance-lease principal repayments were $3.5 million. Company-defined non-GAAP free cash flow was negative $38.4 million, versus negative $24.1 million.
- Debt: Convertible senior notes had $1.24 billion aggregate principal outstanding ($90.0 million due 2024 and $1.15 billion due 2026); their combined net carrying amount was $947.7 million after unamortized discounts and issuance costs. The notes are senior unsecured obligations.
- Balance sheet: Total liabilities were $1.334 billion and stockholders’ equity was $21.8 million. Accumulated deficit was $859.6 million. Deferred revenue totaled $195.8 million; remaining performance obligations were $217.7 million, about 55% expected to be recognized within 12 months.
- Growth indicators: The company reported over 22,600 customers, up from over 15,900 a year earlier, and 898 customers with at least $100,000 in ARR or annualized MRR, compared with 688.
Material changes versus the prior comparable period
- Revenue growth was accompanied by wider losses: quarterly net loss increased to $72.7 million from $42.4 million; nine-month net loss increased to $191.1 million from $113.0 million.
- Quarterly gross margin declined to 69% from 71%, mainly reflecting higher subscription support costs and lower services utilization. Nine-month gross margin remained 70%.
- Operating expenses grew substantially: nine-month sales and marketing rose 45%, research and development 39%, and general and administrative 32%. Management cited higher headcount, compensation and stock-based compensation; stock-based compensation was $108.0 million for nine months, compared with $51.0 million.
- Other expense increased, primarily from non-cash amortization of debt discounts and issuance costs and interest associated with the 2026 notes. Nine-month interest expense was $41.8 million, versus $14.4 million.
- Cash and cash equivalents fell from $706.2 million at January 31 to $414.8 million at October 31, while short-term investments rose from $280.3 million to $551.5 million. Total assets were $1.356 billion, compared with $1.329 billion at January 31.
Outlook, risks and unusual items
- Management expects COVID-19-related economic slowdown and uncertainty to continue negatively affecting revenue in the near term. It also cited remote work, travel limits and virtual events as potential challenges to sales, marketing, recruiting and operations. Lower travel costs were expected to continue near term, with some savings directed to marketing and research and development.
- The filing provides no clear numerical revenue or earnings guidance for the coming quarter or fiscal year. Management expects continued operating losses and negative operating cash flows, and says it intends to invest in sales, marketing, research and development, and international expansion.
- The 2024 notes became convertible at holders’ option from November 1, 2020 through January 31, 2021 after the stock-price conversion condition was met. A conversion could require cash payments and affect liquidity. The 2026 notes were not convertible during the reported period. The company said it currently expects to settle note principal in cash; capped calls are intended to partially offset potential dilution.
- COVID-19-related uncertainty also contributed to a higher allowance for doubtful accounts, which increased to $4.7 million from $2.5 million at January 31. The company recorded a $0.2 million cumulative-effect adjustment upon adopting the expected-credit-loss accounting standard.
- A patent suit brought by Realtime Data alleging infringement related to data compression, storage and retrieval remained stayed; the Federal Circuit remanded a related action for further proceedings. MongoDB reported no accrual, stating it believed a material loss was less than reasonably possible.
- Key risks include economic and IT-spending weakness, competition, customer retention and conversion of free users, Atlas hosting costs and reliance on third-party cloud providers, cybersecurity and privacy, open-source licensing, and the substantial convertible-note obligations. Management reported disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether Atlas growth and customer expansion continue, and how cloud infrastructure costs affect subscription and overall gross margins.
- Whether expense growth, particularly stock-based compensation and sales and marketing investment, produces improving operating leverage.
- Cash burn and liquidity trends, including the company’s ability to fund planned investments while servicing or settling convertible notes.
- The effect of possible 2024-note conversions during the stated conversion window and any resulting cash use, share issuance or balance-sheet classification changes.
- COVID-19’s continuing impact on customer demand, collections, sales execution and services utilization, as well as developments in the stayed Realtime Data litigation.