Mongodb, Inc. quarterly report, Q1 FY2020

Business context and reporting period

MongoDB, Inc. filed this unaudited Form 10-Q for the first quarter of fiscal 2020, the three months ended April 30, 2019; comparisons are with the three months ended April 30, 2018. MongoDB sells database subscriptions, including its hosted MongoDB Atlas service, and consulting and training services. Subscription revenue was 94% of total revenue. The company reported more than 14,200 customers, up from more than 6,600 a year earlier, and 1,331 employees.

Key financial results

Revenue grew 78% year over year, led by subscriptions, which increased 82%. MongoDB Atlas-related revenue was $30.9 million, versus $7.0 million; Atlas represented 35% of total revenue, compared with 14%. The company attributed revenue growth to new customers, including mLab customers, and expansion among existing customers.

Gross margin declined primarily because Atlas growth increased third-party cloud infrastructure costs; subscription gross margin was 73%, down from 78%. Services gross margin was negative 3%, versus positive 10%, with the filing noting variability from the timing of standalone services work. Operating expenses rose to $91.8 million from $63.1 million. Stock-based compensation was $14.0 million, up from $7.6 million.

Financial position and material changes

At April 30, 2019, cash and cash equivalents were $158.1 million and short-term investments were $318.3 million. Including $0.5 million of restricted cash, total cash, cash equivalents, restricted cash and short-term investments were $476.9 million. Current assets were $567.2 million and current liabilities were $178.2 million. Accumulated deficit was $526.0 million.

The company had $300.0 million principal amount of 0.75% convertible senior notes due 2024, with a net carrying amount of $220.1 million. Their estimated fair value was approximately $630.8 million. The notes became conditionally convertible at holders’ option from May 1 through July 31, 2019; no conversion notices had been received as of the filing. MongoDB stated it currently intended to settle principal in cash. Lease accounting adoption on February 1, 2019 added lease right-of-use assets and liabilities and reduced opening accumulated deficit by $4.1 million.

Deferred revenue, current and non-current, totaled $143.7 million. Remaining performance obligations were $178.8 million, of which approximately 53% was expected to be recognized over the next 12 months. Operating cash flow turned positive, reflecting collections, deferred revenue growth and noncash expenses; the company nevertheless reported ongoing operating losses.

Outlook, commentary, risks and unusual items

No quantified revenue or earnings guidance is provided in the filing. Management said it intends to continue investing heavily in sales and marketing, research and development, and expansion rather than optimizing for near-term profitability or cash flow. It expects operating losses and negative operating cash flows to continue, while stating existing cash and investments should fund operating and capital needs for at least 12 months. Management also warned that Atlas growth may pressure gross margin and that quarterly results may fluctuate, including due to seasonality and revenue-recognition timing.

On May 7, 2019, after quarter-end, MongoDB completed its acquisition of Realm, a mobile database company, for $39.0 million in cash, subject to customary adjustments. A patent lawsuit filed by Realtime Data in March 2019 alleges infringement of three patents relating to data compression, storage and retrieval and seeks damages and injunctive relief. The company had not accrued a loss and stated it was not aware of matters likely to have a material adverse effect, while noting litigation outcomes are unpredictable.

Principal risks include sustained losses and execution of growth plans; competition, customer retention and conversion of free users; dependence on third-party cloud infrastructure and related costs; security, privacy and service-availability incidents; uncertainty around the SSPL license; and potential cash or liquidity effects if convertible notes are converted or repurchased. The company also disclosed non-cancelable cloud-capacity commitments, which may require payment regardless of actual usage. Management concluded disclosure controls and procedures were effective at the reasonable-assurance level, with no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

• Whether Atlas growth and customer expansion continue, and whether cloud infrastructure costs further affect gross margin.
• Whether revenue growth translates into improving operating results and cash generation, given management’s expectation of continued losses and investment.
• The status and potential cash, dilution and balance-sheet effects of the notes’ conversion feature during and after the May–July 2019 conversion window.
• The integration, final cash cost and expected contribution of the Realm acquisition.
• Developments in the Realtime Data patent litigation and any other material legal or licensing exposure.
• How much cloud capacity is committed relative to usage and how this affects costs and liquidity.