MongoDB, Inc. — Q3 FY2018 Form 10-Q
Reporting period: Three and nine months ended October 31, 2017; fiscal year ends January 31. Financial statements are unaudited. The quarter followed the company’s October 2017 IPO.
Financial performance
| Metric | Three months ended Oct. 31, 2017 | Prior-year quarter | Nine months ended Oct. 31, 2017 | Prior-year period |
|---|---|---|---|---|
| Revenue | $41.5 million | $26.3 million | $109.5 million | $71.4 million |
| Subscription revenue | $37.9 million | $23.8 million | $99.6 million | $64.0 million |
| Services revenue | $3.6 million | $2.5 million | $9.9 million | $7.4 million |
| Gross profit | $30.4 million | $19.1 million | $79.0 million | $49.9 million |
| Operating loss | $(24.1) million | $(19.3) million | $(70.0) million | $(64.7) million |
| Net loss | $(24.2) million | $(19.5) million | $(70.0) million | $(64.9) million |
| Net loss per share, basic and diluted | $(1.39) | $(1.57) | $(4.74) | $(5.41) |
| Operating cash flow | Not provided for the quarter | $(37.2) million | $(28.0) million | |
| Free cash flow, non-GAAP | Not provided for the quarter | $(38.9) million | $(29.4) million |
- Revenue grew 58% in the quarter and 53% over nine months. Subscription revenue represented 91% of nine-month revenue.
- Quarter gross margin was reported as 73% in management’s discussion; the comparative table shows 73% versus 72%. Nine-month gross margin was 72%, up from 70%.
- Quarter operating expenses were $54.5 million, up from $38.3 million. Sales and marketing expense rose 50% year over year; research and development rose 25%, and general and administrative rose 54%.
- At October 31, cash and cash equivalents were $242.7 million and short-term investments were $45.8 million, totaling $288.6 million. Total liabilities were $140.8 million, including $114.8 million of deferred revenue. The balance sheet presents no borrowing or debt balance.
- The company reported $417.4 million of accumulated deficit. IPO proceeds were $201.6 million net of underwriting discounts and offering expenses; nine-month financing cash flow was $211.2 million.
Changes, business context, and outlook
- MongoDB sells database subscriptions, including its hosted MongoDB Atlas service, and consulting and training. Atlas accounted for 8% of quarterly revenue, up from 1% a year earlier. Management attributed subscription growth to new customers, Atlas adoption, and expansion by existing customers.
- Customer count exceeded 4,900 at October 31, versus over 2,600 a year earlier. The company reported 2,600-plus Atlas customers and 320 customers with at least $100,000 in ARR or annualized self-service MRR.
- Operating cash outflow increased year over year, despite higher deferred revenue. Management expects continued operating losses and negative operating cash flow, and intends to invest heavily in sales and marketing, research and development, and international growth rather than prioritize near-term profitability. It said available cash and investments should fund operating and capital needs for at least 12 months.
- No quantified revenue or earnings guidance is provided. Management notes historically stronger fourth-quarter enterprise sales and renewals, though subscription revenue recognition can make seasonality less apparent.
- The company completed its IPO in October at $24 per share, issued 9.2 million Class A shares, and converted its outstanding preferred stock into Class B common stock. Class B shares carry 10 votes each versus one vote for Class A, concentrating voting control.
- Subsequent commitments include a November cloud-provider partnership with a $36.0 million non-cancelable commitment over three years, inclusive of approximately $6.7 million of existing capacity commitments. In December, MongoDB signed a 12-year New York office lease with estimated base rent of $87.9 million and approximately $11.4 million in landlord improvement allowances.
Risks, contingencies, and unusual items
- MongoDB expects continuing losses as expenses rise; results depend on subscription renewals and expansion, converting free users to paying customers, and sustaining Atlas adoption. Atlas growth may also increase cloud infrastructure costs and pressure gross margins.
- The company depends on third-party cloud infrastructure for Atlas and identifies service availability, security breaches, software defects, privacy regulation, open-source licensing, competition, sales execution, and international expansion as material risks.
- Management expects adoption of the new revenue standard to reduce unearned subscription revenue significantly; the timing and impact remain under evaluation. The filing says the software-license portion may be recognized upon delivery, with other contract deliverables still being assessed.
- Management reported no known legal matter expected to have a material adverse effect and no accrual for material legal contingencies. Operating lease and other contractual minimum payments at October 31 were $22.8 million and $10.0 million, respectively; later commitments are noted above.
- Disclosure controls were assessed as effective at the reasonable-assurance level, with no material change in internal control over financial reporting reported for the quarter. The company is an emerging growth company and uses the extended transition period for new accounting standards.
Important facts for investors to verify
- Track subscription growth, Atlas revenue and infrastructure costs, customer renewals, and conversion of free users to paid customers.
- Monitor operating expense growth, operating cash burn, deferred revenue, and the runway implied by cash and investments.
- Assess the financial and operational impact of the cloud partnership and long-term office lease commitments.
- Confirm the timing and financial-statement effects of the company’s adoption of the new revenue recognition standard.
- Review dual-class voting control and potential share supply, including the IPO lock-up expiration and equity awards.
- Note that the filing’s quarterly gross-margin comparison differs between its narrative and comparative table; verify against the underlying financial statements.