Business context and reporting period
MongoDB, Inc. filed this unaudited Form 10-Q for the quarter ended July 31, 2020, the second quarter of fiscal 2021. The company sells database subscriptions, including its hosted MongoDB Atlas service, and professional services. Subscription revenue was 96% of total revenue in the quarter.
Financial performance and position
| Metric | Three months ended July 31, 2020 | Year-over-year comparison |
|---|---|---|
| Total revenue | $138.3 million | Up 39% from $99.4 million |
| Subscription revenue | $132.5 million | Up 41% |
| MongoDB Atlas-related revenue | $61.1 million | Up from $36.8 million; 44% of total revenue |
| Gross profit / gross margin | $96.0 million / 69% | Margin down from 70% |
| Operating loss | $49.8 million | Widened from $37.7 million |
| Net loss / diluted loss per share | $64.5 million / $1.10 | Loss widened from $37.3 million / $0.67 |
For the six months ended July 31, revenue was $268.6 million, up 42% year over year, while net loss was $118.5 million versus $70.6 million. Six-month operating cash flow was negative $15.9 million, compared with negative $9.4 million; non-GAAP free cash flow was negative $23.5 million versus negative $11.0 million.
At July 31, cash and cash equivalents were $469.5 million and short-term investments were $505.4 million; including restricted cash, total cash, cash equivalents and short-term investments were $975.4 million. Total liabilities were $1.307 billion. Convertible notes had $1.240 billion aggregate principal outstanding ($90 million due 2024 and $1.150 billion due 2026); their combined net carrying amount was $935.3 million after discounts and issuance costs.
Material changes versus the prior comparable period
- Revenue growth was driven by both new and existing customers. In the quarter, management attributed $19.8 million of subscription growth to new customers; the remainder came from existing customers.
- Atlas-related revenue increased to 44% of quarterly revenue from 37% a year earlier. Across the first six months, Atlas-related revenue was $115.2 million versus $67.7 million.
- Quarterly operating expenses rose 36% to $145.8 million, led by sales and marketing (+40%), research and development (+33%) and general and administrative (+32%). Headcount was 2,169, up from 1,491 a year earlier.
- Services gross margin deteriorated to negative 44% from negative 12% in the quarter, reflecting higher compensation costs and lower utilization during the pandemic. Subscription gross margin remained 74%.
- Interest expense rose substantially following the January 2020 issuance of $1.15 billion of 0.25% convertible notes due 2026; debt discount and issuance-cost amortization contributed to the increase.
- Stock-based compensation was $37.5 million for the quarter, up from $17.7 million, and $68.1 million for the six months, up from $31.7 million.
Outlook, risks, contingencies and unusual items
Management gave no specific revenue or earnings guidance in this filing. It expects COVID-19-related economic disruption to negatively affect revenue at least through fiscal 2021, while acknowledging that the duration and magnitude are uncertain. The company expects continued operating losses and negative operating cash flows, and plans to keep investing in product development, sales and marketing rather than prioritizing near-term profitability. Management said existing cash and short-term investments should fund operating and capital needs for at least 12 months.
COVID-19 measures included remote work, suspended non-essential travel and virtual events. Employees could elect to work remotely through July 1, 2021; reduced travel was expected through January 31, 2021. Travel savings were expected to be partly redirected to marketing and research and development. The pandemic also contributed to a higher allowance for doubtful accounts, which reached $4.4 million from $2.5 million at January 31, 2020.
The 2024 notes became convertible at holders’ option from August 1 through October 31, 2020 after the stock-price conversion condition was met. Conversion could require cash settlement and affect liquidity; the company said it currently expected to settle note principal in cash. The 2026 notes were not convertible during the reported period. The company reported a stayed patent-infringement lawsuit brought by Realtime Data; it had not accrued a loss and said it did not believe a material loss was reasonably possible. A new Palo Alto office lease is not yet reflected in lease obligations because its commencement date was uncertain amid the pandemic.
Other notable items: Class B shares automatically converted to Class A shares in June 2020, eliminating the Class B class and its 10-vote shares. The company adopted the expected-credit-loss accounting standard, recording a $0.2 million cumulative-effect increase to accumulated deficit. Management reported disclosure controls were effective as of July 31, 2020.
Most important facts for investors to verify
- Whether Atlas growth and customer expansion continue, and how cloud infrastructure costs affect gross margins.
- Whether COVID-19 affects sales pipeline, bookings, customer collections and services utilization beyond management’s current expectations.
- Cash burn and the capacity of the $975.4 million liquidity pool to fund continued investment and operating losses.
- Potential cash or share settlement and liquidity effects if holders convert the 2024 notes, along with dilution and accounting impacts from both note issues.
- The extent to which rising operating expenses and stock-based compensation translate into sustainable revenue growth and progress toward profitability.
- Developments in the stayed Realtime Data litigation and other legal, data-security, privacy and regulatory risks.