MongoDB, Inc. — Q3 FY2019 Form 10-Q
Reporting period: Three and nine months ended October 31, 2018. The interim financial statements are unaudited; amounts below are in U.S. dollars.
Business context and reporting period
MongoDB sells database subscriptions, including its hosted MongoDB Atlas service, and related consulting and training. Subscription revenue generated 92% of revenue in both the quarter and nine-month period. Management says it intends to continue investing heavily in growth rather than prioritizing near-term profitability or cash flow.
Key financial metrics
| Metric | Q3 FY2019 | Q3 FY2018 | Nine months FY2019 | Nine months FY2018 |
|---|---|---|---|---|
| Revenue | $65.0 million | $41.5 million | $170.7 million | $109.5 million |
| Gross profit / margin | $47.2 million / 73% | $30.4 million / 73% | $122.7 million / 72% | $79.0 million / 72% |
| Operating loss | $(29.1) million | $(24.1) million | $(88.9) million | $(70.0) million |
| Net loss | $(31.3) million | $(24.2) million | $(91.7) million | $(70.0) million |
| Net loss per share, diluted | $(0.59) | $(1.39) | $(1.78) | $(4.74) |
| Operating cash flow | Not separately presented for the quarter | $(32.5) million | $(37.2) million | |
| Free cash flow, non-GAAP | Not separately presented for the quarter | $(36.2) million | $(38.9) million |
Quarterly subscription revenue rose 59% to $60.1 million; services revenue rose 36% to $4.9 million. For the nine months, subscription revenue increased 58% and services revenue 33%. The company reported 8,300+ customers, versus 4,900+ a year earlier, and 6,200+ MongoDB Atlas customers. Atlas represented 22% of quarterly revenue and 18% of nine-month revenue.
At October 31, cash and cash equivalents were $139.5 million, short-term investments $382.7 million, and restricted cash $0.5 million—$522.7 million combined. Total assets were $670.7 million and total liabilities $473.4 million. Convertible senior notes had a net carrying value of $213.7 million; principal outstanding was $300 million. Current and non-current deferred revenue totaled $153.8 million.
Material changes versus prior comparable periods
- Revenue growth was driven by new and existing customers. Management attributed $13.5 million of the quarterly subscription increase and $26.6 million of the nine-month increase to new customers; the balance came from existing customers.
- Operating losses widened in dollars as operating expenses grew, although operating loss declined as a share of revenue. Sales and marketing, research and development, and general and administrative expenses increased 36%, 40%, and 52%, respectively, year over year in the quarter.
- Quarterly overall gross margin was unchanged at 73%; subscription margin declined one percentage point to 78%, partly reflecting Atlas-related cloud infrastructure costs. Nine-month services margin fell to 4% from 11%, which the company attributed partly to staffing investments ahead of expected growth.
- Net loss per share improved year over year, but weighted-average shares increased substantially following the October 2017 IPO; the per-share comparison should be considered alongside share-count changes.
- Nine-month operating cash use improved to $32.5 million from $37.2 million. Investing cash use increased to $167.4 million, primarily from purchases of marketable securities net of maturities.
Outlook, risks, contingencies, and unusual items
- Outlook: No numerical revenue or earnings guidance is provided in the supplied filing text. Management expects continued operating losses and negative operating cash flows, but believes cash, cash equivalents, and short-term investments are sufficient for at least the next 12 months.
- Convertible notes: Issued $300 million principal of 0.75% notes due 2024, generating approximately $291.1 million net proceeds. The company purchased capped calls for $37.1 million intended to partially offset conversion dilution, subject to a cap. The company stated its current intent is to settle principal in cash. The notes’ disclosed fair value at October 31 was approximately $403.2 million.
- Acquisition: MongoDB acquired cloud database provider mLab on November 1, 2018, after the reporting date, for $68 million cash subject to customary adjustments. Integration, customer migration, retention, and expected returns are identified risks.
- Unusual expense: A $1.5 million charge was recorded in quarterly general and administrative expense for vacating the former New York office. The quarter also included $0.5 million of mLab acquisition costs.
- Open-source licensing: On October 16, 2018, MongoDB introduced its Server Side Public License (SSPL) for new Community Server versions. The filing cautions that uncertainty about enforceability or adoption could affect developer use, conversion to paid offerings, and growth.
- Revenue accounting: The company expected to adopt the new revenue standard for FY2019 using full retrospective application. It expected unearned subscription revenue to decline and term-license revenue recognition to become more variable, with possible effects on contract acquisition cost accounting; its assessment remained preliminary.
- Legal and controls: The company reported no known legal matters expected to have a material adverse effect and concluded disclosure controls were effective at a reasonable assurance level. It reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Atlas growth and customer expansion continue to offset cloud infrastructure costs and pressure on subscription margins.
- How the SSPL affects Community Server adoption, customer conversion, and competitive behavior, including legal interpretation and enforceability.
- Cash burn, stock-based compensation, and share dilution; nine-month stock-based compensation was $26.9 million.
- Convertible-note terms, potential conversion dilution, capped-call protection, and the company’s capacity to meet debt obligations or settle conversions in cash.
- mLab’s final purchase adjustments, integration costs, customer retention, and contribution to MongoDB Atlas growth.
- The eventual impact of the new revenue standard on reported revenue, deferred revenue, and contract acquisition costs.