MongoDB, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended July 31, 2018 (fiscal 2019 second quarter). Financial statements are unaudited. Comparisons are with the same periods in 2017 unless stated otherwise.
Business context
MongoDB sells database subscriptions, including MongoDB Enterprise Advanced and its hosted MongoDB Atlas service, and provides consulting and training. Subscriptions generated 92% of revenue. Management said it is prioritizing growth and continued investment over near-term profitability and cash flow. As of July 31, 2018, the company reported more than 7,400 customers, including more than 5,300 MongoDB Atlas customers.
Financial performance
| Metric | Three months ended July 31, 2018 | Six months ended July 31, 2018 |
|---|---|---|
| Revenue | $57.5 million, up 61% | $105.7 million, up 55% |
| Subscription revenue | $52.9 million, up 63% | $97.5 million, up 58% |
| Gross profit / margin | $41.0 million / 71% | $75.5 million / 71% |
| Operating expenses | $71.6 million | $135.3 million |
| Operating loss | $30.6 million | $59.9 million |
| Net loss | $31.2 million | $60.4 million |
| Operating cash flow | Not presented for the quarter | $(24.9) million |
| Free cash flow (non-GAAP) | Not presented for the quarter | $(26.5) million |
For the quarter, net loss per share was $0.61 versus $1.92; for the six months, it was $1.19 versus $3.42. The lower per-share loss reflects a substantially larger weighted-average share count after the 2017 IPO, rather than lower net losses. For the six months, stock-based compensation was $16.6 million versus $9.4 million.
At July 31, cash and cash equivalents were $122.8 million and short-term investments were $399.9 million; including restricted cash, total cash, cash equivalents and short-term investments were $523.2 million. Current assets were $583.7 million and current liabilities $156.2 million. The balance sheet recorded $210.6 million of convertible notes, net, against $300 million principal. Accumulated deficit was $504.2 million.
Changes versus prior comparable periods
- Second-quarter revenue rose $21.9 million, with subscription revenue up $20.4 million. Management attributed subscription growth to new customers and expansion among existing customers. For the six months, subscription revenue growth included $18.9 million from new customers.
- Gross margin remained 71% in both comparison periods. Subscription gross margin declined one percentage point to 77%, primarily as Atlas growth increased third-party cloud infrastructure costs. Six-month services gross margin fell to 2% from 10%, which management attributed to investment in service headcount ahead of anticipated growth.
- Operating expenses rose 39% in the quarter and 43% for the six months, driven by hiring, stock-based compensation, sales commissions, marketing and public-company costs. Operating losses and net losses increased in dollars.
- Six-month operating cash use improved to $24.9 million from $26.9 million; free cash flow use improved to $26.5 million from $28.5 million. Cash from financing increased substantially following the convertible-note issuance.
Outlook, risks and unusual items
- Management expects to continue investing in sales and marketing, research and development, services and international expansion, and anticipates continued operating losses and negative operating cash flows. It said existing cash and investments should fund operating and capital needs for at least 12 months; no numerical revenue or earnings guidance was provided.
- In June and July 2018, MongoDB issued $300 million principal of 0.75% convertible senior notes due 2024, with approximately $291.1 million net proceeds. The notes’ initial conversion price is approximately $68.15 per share; the company said it currently intends to settle principal in cash. It spent $37.1 million on capped calls intended to partially offset potential dilution, subject to a cap. The notes’ liability carrying amount includes substantial unamortized discount and issuance costs; amortization contributed to interest expense.
- The company identified debt-service, potential cash settlement and conversion-related liquidity risks. A qualifying fundamental change could require repurchase of notes for cash. The capped-call counterparties’ hedging activity may affect the notes’ and common stock’s market prices.
- MongoDB expected to lose emerging growth company status as of January 31, 2019, leading to additional reporting and audit requirements. It planned to adopt the new revenue standard for fiscal 2019 using the full retrospective method, but noted its assessment remained preliminary. It expected unearned subscription revenue to decline and software-term-license revenue to be recognized upon delivery, potentially increasing period-to-period fluctuations.
- New York office construction was completed September 4, 2018, after quarter-end. The company will assess sale-leaseback accounting for the lease in the reporting period ending October 31, 2018.
- The company reported no legal matters expected to have a material adverse effect and no material changes to previously disclosed risk factors other than the new note-related and emerging-growth-company risks. Management concluded disclosure controls were effective at the reasonable assurance level.
Investor verification points
- Track subscription growth, Atlas’s share of revenue and cloud infrastructure costs, and the resulting subscription and total gross margins.
- Assess whether operating expense growth, continuing losses and negative free cash flow remain consistent with management’s growth strategy and liquidity statement.
- Review the notes’ conversion, redemption and fundamental-change terms, cash-settlement exposure, discount amortization, and the capped calls’ limits and counterparty risks.
- Verify the company’s final revenue-standard transition and its effects on deferred revenue and revenue timing, as well as the timing and cost of expanded public-company reporting and auditor attestation.
- Monitor the completed New York office project and the subsequent lease-accounting determination.