Business context and reporting period
MongoDB, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended October 31, 2019 (fiscal 2020). It sells database subscriptions and related services, including MongoDB Atlas, a hosted database service. Management says it plans to continue investing heavily in growth rather than prioritizing near-term profitability or cash flow.
Key financial metrics
| Metric | Three months ended October 31, 2019 | Nine months ended October 31, 2019 |
|---|---|---|
| Revenue | $109.4 million; +52% year over year | $298.2 million; +64% |
| Subscription revenue | $103.8 million; +56% | $282.0 million; +68% |
| Gross profit / margin | $77.3 million / 71% (75% prior year) | $207.6 million / 70% (74% prior year) |
| Operating loss | $38.7 million (35% of revenue) | $107.0 million (36% of revenue) |
| Net loss | $42.4 million; $0.75 per share | $113.0 million; $2.03 per share |
| Operating cash flow / free cash flow | Not provided for the quarter | $(20.9) million / $(24.1) million |
Atlas-related revenue was $44.1 million in the quarter and $111.8 million for the nine months; management reported it represented 40% and 37% of total revenue, respectively. Subscription revenue was 95% of revenue in both periods. Stock-based compensation was $19.4 million for the quarter and $51.0 million for the nine months.
At October 31, 2019, cash and cash equivalents were $151.3 million and short-term investments were $274.6 million; including restricted cash, total cash, cash equivalents and short-term investments were $426.4 million. Total assets were $735.0 million, current liabilities $204.5 million, and deferred revenue $152.4 million. Convertible notes had a $300 million principal balance and $226.7 million net carrying value. Management stated available cash and investments were expected to fund operating and capital needs for at least 12 months.
Changes versus the prior comparable period
- Quarterly revenue rose 52%, but net loss widened from $22.5 million to $42.4 million; nine-month net loss widened from $76.8 million to $113.0 million.
- Gross margin declined four percentage points in both comparisons, primarily due to Atlas growth and higher third-party cloud infrastructure costs. Quarterly subscription cost of revenue doubled year over year.
- Operating expenses increased with hiring and investment: quarterly sales and marketing rose 58%, research and development 70%, and general and administrative 31%.
- Nine-month operating cash use improved to $20.9 million from $32.5 million; free cash flow use improved to $24.1 million from $36.2 million.
- The May 2019 Realm acquisition added $38.8 million of purchase consideration, including $27.3 million of developed technology intangible assets and $13.6 million of goodwill including related deferred-tax effects. Realm’s post-acquisition operating results were not material, according to the filing.
Outlook, risks and unusual items
- No specific quantitative revenue, earnings or cash-flow guidance is provided. Management expects continued operating losses and negative operating cash flows, and anticipates further investment in sales, marketing, research and development, and international expansion.
- Management expects Atlas growth to pressure gross margin because of cloud hosting costs; cloud capacity commitments may require payment irrespective of actual usage.
- The $300 million, 0.75% convertible notes due 2024 became conditionally convertible at holders’ option for November 1, 2019 through January 31, 2020 after the stock-price trigger was met. No conversion notices had been received as of the filing; the company said it currently intended to settle principal in cash. A fundamental-change repurchase could also require cash.
- The Realtime Data patent case alleging infringement involving data compression, storage and retrieval was stayed pending an appeal in a separate action. The company recorded no accrual for legal contingencies, stating it believed a material loss was not reasonably possible.
- Principal risks highlighted include persistent losses, competition from established database and cloud providers, dependence on Atlas and third-party cloud infrastructure, security and service disruptions, customer conversion and renewal, open-source licensing uncertainty, international and regulatory exposure, and dilution or cash needs associated with convertible debt and equity compensation.
- The company adopted the new lease accounting standard in February 2019, recognizing lease right-of-use assets and liabilities; the filing reports a $4.1 million cumulative opening accumulated-deficit adjustment. A new New York office lease expected to commence in 2020 carries estimated base rent of $8.1 million.
Important facts for investors to verify
- Whether Atlas growth can continue while improving cloud infrastructure economics and stabilizing gross margin.
- Whether revenue growth and customer expansion can outpace rising operating costs, stock-based compensation and ongoing losses.
- Cash burn, capital requirements and the effect of any conversion or cash settlement of the notes; monitor the conversion status and note terms.
- The extent of non-cancelable cloud capacity commitments and their impact if customer usage or growth slows.
- Developments in the stayed Realtime litigation and other intellectual-property, security, privacy and regulatory risks.
- Progress integrating Realm and realizing expected product or customer benefits; the filing says Realm’s reported operating contribution was not material.