Couchbase Inc at Morgan Stanley Technology, Media & Telecom Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sanjit Singh - Morgan Stanley - Analyst : So maybe it's just a level set, Matt, came off, I would characterize the best quarter of the year. ARR growth finished at 17%. You grew net new ARR, 26% constant currency. Maybe let's review at some of the highlights in Q4. What happened in Q4 that drove what I think was like the best performance of the year?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah. At this time last year, we're on stage, and we're on a theme of like, if we look at the higher rate environment since we came out of '21 into 2022, 98%, 99% of software companies are slowing down, and you guys were on this path of you guys were sustained. I think it was 23% ARR growth. The previous year, you did 25% growth. It's like definitely a lie. This year was definitely a little bit lower growth. Was a just as a function of the macro catching up with you guys, or was there any other factors that came to bear that cause out a little bit slower growth versus what you have in the stage in the past years?

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. Just to tie the boat on some of those isolated headwinds when you see maybe a customer that goes from paid to community or free. What gives you guys confidence that those are, in fact, isolated events and that something that doesn't become a recurring part of the story year on year.

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah, that's fair enough. So let's talk about the opportunity in front of Couchbase. And I think it's a really interesting sitting time the data platform database category overall. Probably one of the those popular questions that our team has been getting is like when we think about the foundational requirements of a database to power the next wave of modern AI applications. What sort of wins out, like no SQL versus a relational Postgre style implementation -- what is your perspective on that? And why is like a kind of no SQL architecture like Couchbase, or you've also actually embedded a lot of relational capabilities I might add? Why is that the right answer for AI applications?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah. just sort of a follow-up on your point and sort of like how does 1 plus 1 equal 3. So there was a lot of focus on kind of a pure-play Vector databases. They got a lot of attention in the market. But what's the importance because our pinpoint for us, the -- having a world-class operational database combined with what you guys call AI services, which includes your Vector at capabilities. Why is that important for customers? What's the unlock here?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah. Makes a lot of sense. Let's extend the conversation to maybe the incumbents like operational databases, but also embedding Vector Search capabilities. How does Couchbase stand out from those competitors and those peers?

Question: Sanjit Singh - Morgan Stanley - Analyst : Other operational data stores and particularly when you think about the different capabilities that they have, I mean, I think you guys are differentiate yourselves on things like mobile and sort of cloud to edge, but sort of as you think about a world where everybody, frankly, is supporting Vector Search. How do you stand out from those sets of alternatives?

Question: Sanjit Singh - Morgan Stanley - Analyst : Sort of distinction of being one of the few, if not maybe the only operating database that has significant edge and mobile capabilities. Are you seeing it show up in your sort of win rates or in your sort of bake off or sort of expansion opportunities? Are people specifically highlighting that is that driving some initial use cases?

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. There's been a couple of interesting events happening in the past couple of weeks. IBM acquired DataStax; Mongo acquired Voyager (sic - Voyage AI). What, if anything, do you read into what seems to be a burgeoning wave of consolidation in the database market?

Question: Sanjit Singh - Morgan Stanley - Analyst : That's great. Let's dive into the Capella opportunity, and Capella is your managed cloud service offering, you launched that a couple of years ago. It now stands at 16% of the business. And if you squint, it looks like about a point or two of mix per quarter. I think the mix is up 5 points year over year. What's been the strategy and focus around driving Capella adoption? And sort of what's the thesis behind getting Capella to really hit escape velocity. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 05, 2025 / 8:20PM, BASE.OQ - Couchbase Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Sanjit Singh - Morgan Stanley - Analyst : You mentioned the ARR uplift you see when customers migrate over to Capella. Can you any sort of range or quantification on that ARR uplift? And what are the factors driving that uplift? Is it just going to the classic, hey, we're managing a service for you and you can charge that higher price because you're bringing to bear those the compute and the storage and the operational heft to drive that higher TCO. Like what are the factors behind that?

Question: Sanjit Singh - Morgan Stanley - Analyst : I love how you played that out sort of winning application by application. So can you give us a sense of what are -- how is the sales engagement interacting with the customers after they go from migrating that initial application and then getting into applications two, three, four, five, and so forth.

Question: Sanjit Singh - Morgan Stanley - Analyst : Can you give us like when we think about the Capella growth and as it's starting to mature the sort of growth contributors between the migration piece, the expansion piece, and then sort of new logos, how is that sort of -- how do those three components evolved over the last year?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah, sounds super exciting. One of the business metrics that kind of popped out of the page when we think about fiscal year '25 with customer base growth. Customer base grew 26%. I think the prior year was like 10 or 11, right? So big set on. I imagine Capella has to be a big driver of growth for that. At the same time, when I look at Q4, you guys added a really impressive number of logos, 44, but only 10 of them came from Capella. So I guess the question is like, why was Capella not a bigger factor in the Q4, Q4 new logo ads? And then as we see looking out into next year and the years ahead, what's a reasonable amount of new logos that you're striving for?

Question: Sanjit Singh - Morgan Stanley - Analyst : Understood. Let's move the conversation a little bit over to the financial side of the house and maybe even talk about -- a little bit about go-to-market in the last couple of minutes that we have. If we go back to the last Analyst Day in 2023, you guys provided a midterm outlook, roughly about a 20% growth CAGR, positive free cash flow fiscal year operating income positive by fiscal year 2027. The update that we got last week was free cash flow maybe pushes out by year, but operating income is still on track. How do you feel about the 20% CAGR on ARR growth that you guys laid out in the Analyst Day. Is that still something that's aspirational or what's the right context on that?

Question: Sanjit Singh - Morgan Stanley - Analyst : Great. Another popular question that we get, and we've touched on this on our earnings calls before several times, but I think it's important since it is still a popular question, that delta and that's spread between ARR growth or sustaining sort of high-teens, if you normalize, maybe it kind of looks like 20% versus the slower revenue growth. The factors driving that and sort of the time line for those to start to converge.

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. I always say still pay attention to the air great. You made a couple of like headline grabbing announcements on the partnership front. Talk to me both about like the NVIDIA partnership, what does that mean for couch based in the business? And then the evolution of your partnership with AWS, where does that stand today and where is that going?

Question: Sanjit Singh - Morgan Stanley - Analyst : Awesome. Maybe we'll end on the DeepSeek over the last month. What does that -- them from a foundational model perspective being able to be close to some of the state-of-the-art models today at lower training costs. How do you perceive the DeepSeek moment in terms of the industry, maybe for your customers and maybe for Couchbase.

Question: Sanjit Singh - Morgan Stanley - Analyst : We'll Leave it there as we're out of time. Matt, thank you so much for joining us. Appreciate it.