Couchbase Inc Q2 2025 Earnings Call Transcript

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

Question: Matt Hedberg - RBC Capital Markets - Analyst : Hey, guys. Thanks for taking my questions. Maybe I wanted to start with the kind of the unexpected churn and downsell that you talked about, it sounded like, Greg, you said there was there wasn't really a commonality to those. I guess I wanted to double-click on that. And is there a way to think about the magnitude of that on your Q2 net new ARR?

Question: Matt Hedberg - RBC Capital Markets - Analyst : That's helpful. Thank you. And then Matt, I mean, the new customer adds was was was a real highlight, and it sounded like you had quite a bit of success from a partner perspective, partner, add perspective on some of the on some of the partners that you called out. I guess I'm wondering, you guys have had a lot of focus on increasing sales and marketing focus on partners. Could you maybe talk a little bit why you're seeing some success there and how repeatable is that, especially as we look forward, what seemingly sounds like a strong second half pipeline for you guys?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Thanks a lot, guys.

Question: Kash Rangan - Goldman Sachs - Analyst : I'm fine. Thank you very much. Matt, you talked about the columnar database. I'm curious to get your expanded thoughts on it. I always thought, Jamie, I was more on the unstructured side of things. Obviously, databases have a huge role to play with the structured data. But can you can you explain is this something that you're hearing from your customers? Are you proactively doing this columnar database? Because I still want to understand how that columnar database splits with the broader G&A enablement of your customers and one for you, but right, B, can you talk a little bit about the Q4 upcoming net new ARR growth that you expect within the customer base? What exactly is driving that is that from Capella our from the core platform. Thank you so much.

Question: Kash Rangan - Goldman Sachs - Analyst : Awesome. Thank you.

Question: Kash Rangan - Goldman Sachs - Analyst : Thank you.

Question: Brent Bracelin - Piper Sandler - Analyst : Thank you. Good afternoon. Matt, I wanted to double-click into Capella net new ARR there more than doubled, sequentially, highest you've ever seen. Could you just walk through what drove that? Obviously, it sounds like there were a lot of new customers was there also a contribution from some migrations of existing customers. Just walk us through what drove the outside momentum just given it did it was so strong this quarter and I have a quick follow-up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 8:30PM, BASE.OQ - Q2 2025 Couchbase Inc Earnings Call

Question: Brent Bracelin - Piper Sandler - Analyst : Helpful color there. And then, Greg, as you as you just think about turning down, so can you just remind us what the gross retention of the business has been over the last, let's say, two, three years and then maybe walk through the logic of what you're baking in on a go-forward basis, do you think there might be a slightly more elevated churn assumption you're baking into the back half of the year? Any additional color there would be helpful. Thanks.

Question: Brent Bracelin - Piper Sandler - Analyst : Got it helpful color. Thank you.

Question: Mike Cikos - Needham & Company - Analyst : Hey, guys. Thanks for taking the questions here. I was just hoping to see if we get a little bit more color. I know we're all circling around the churn and down-sell, but is there any way you can you discuss where were these customers potentially newer cohorts into the Couchbase customer base are have they been around for a while and really. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 8:30PM, BASE.OQ - Q2 2025 Couchbase Inc Earnings Call And the reason for the question is, if I just look at the momentum that you guys have from a product velocity and innovation standpoint, whether it's the GA of mobile with Vector search, your and you guys just recently announced calendar now it's just a bit striking or counterintuitive to hear about this churn and down-sell and just want to make sure that we're thinking about this appropriate as far as this is an anomaly here in Q2.

Question: Mike Cikos - Needham & Company - Analyst : Great. Thank you very much for the thorough answer there, Matt definitely appreciated. And I guess for the follow-up, if I could just tack on first, great to hear the reiteration on the view that next year will be free cash flow positive. Just wanted to double check on on the OpEx, the expense discipline shown in Q2, it really was across the board in every line item there. And I'm trying to think you guys obviously have these go-to-market initiatives, whether it's tapping more heavily into partners, [RemX], engaging with them, offering incentives. So over the remainder of the year. I guess can you just give us a reminder, how should we think about the partners continuing to beat the drum on behalf of Couchbase? And where does the I guess what is the partner contribution to deals today versus where we are, but this does scale too. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 8:30PM, BASE.OQ - Q2 2025 Couchbase Inc Earnings Call

Question: Mike Cikos - Needham & Company - Analyst : Great. thank you very much, guys.

Question: Sanjit Singh - Morgan Stanley - Analyst : Great. Thank you. You have still to non-interest Sanjit. I'll maybe start with one higher level question. I mean, you've obviously had spoken to some of the downtime churn dynamics. And with the new base, you've also spoken about the opportunity of buying for that single source of truth in a I you're obviously not the only company vying for that. Clearly, the hyperscales are playing a big role in this new wave of AI applications. So could you just sort of contextualize what you're seeing in your partnership, but also in your competition with the hyperscalers, are there any meaningful shifts in terms of competitive intensity or win rates and that you would call out? And then second question, sort of on your billings and free cash flow. You spoke to the slipped deals out from Q1 closing. It seems like your billings and your free cash flow was slightly below where the Street expected to be. Anything that you can kind of highlight on what drove that?

Question: Sanjit Singh - Morgan Stanley - Analyst : Got it very well particularly thank you so much.

Question: Ittai Kidron - Oppenheimer & Co - Analyst : Thanks. So not to beat a dead horse here on the churn. What gives you comfort? Is there any way to associate this just for sales execution. I mean, I understand the customer got acquired and the division shut down that that's part of what that happens. But clearly there were other cases of down sales what is it that makes you comfortable that this is not a sales execution issue around rather than just them? Is that coincidence of the customer decision?

Question: Ittai Kidron - Oppenheimer & Co - Analyst : Appreciate that. I guess as we look to Q4, where clearly, as you mentioned, you have a large contracted business, but also you're clearly you're chasing several strategic projects. Can you quantify to us what is the number of strategic projects you hope to close by the way? What is your definition of strategic project. Is that a a 100 K plus land? Is this help us understand the parameters around this? Why spending so much time on it? What is the near term impact of such deals and the long-term potential of such deals.

Question: Ittai Kidron - Oppenheimer & Co - Analyst : Appreciate it.

Question: Jason Ader - William Blair & Company - Analyst : Thank you. And I guess first question is do you think it's possible that you could be operating breakeven by the end of next year? I know you've talked about free cash flow positive next year, but just on the operating line, non-GAAP operating income, do you think that could be you could turn positive or breakeven at some point by the late next year?

Question: Jason Ader - William Blair & Company - Analyst : Okay, good. And then I think what I'm my observation from some of the other questions is just I think people are scratching their heads on the ARR guidance just because it doesn't feel like it's derisked just you've had a challenging first half of the year on net new ARR. Now you basically didn't change the ARR guidance for the year. And I think you explained why do you feel good about Q4 and but it also doesn't feel like it's de-risked. So what was the debate internally on lowering ARR guidance versus keeping it where it is?

Question: Jason Ader - William Blair & Company - Analyst : Could you give us the magnitude of that. There are contracts the growth in that contract,

Question: Jason Ader - William Blair & Company - Analyst : Thank you, guys.

Question: Raimo Lenschow - Barclays - Analyst : It's a perfect. Thank you. And two quick questions and thanks for squeezing me in. The first one is staying on that subject. Is that like I just in the Q4 having these kind of future [EON] commitments within a function of you kind of changing how you kind of working with customers and deal structure? And then if it's something that just came together. It seems it seems all that's kind of it's coming together now. And then can you also mentioned what's driving the down sales that we all talked about the customer loss and I get it doesn't look under your control, but what's driving down-sell is dental economic activity. I think at the customer at the wellhead, the overcommitted and now kind of rightsizing it? What's driving that? Thank you.

Question: Raimo Lenschow - Barclays - Analyst : But I don't think there's much more to it than those being one-off situational things for all the all reasons we've talked about, we feel very comfortable with our ARR base, the strategic nature of our platform, our ability to compete and grow. And so with respect to a multi-period outlook, nothing has changed and we feel confident in the year. And I don't there is no kind of broader pattern beyond those those two big outliers?

Question: Raimo Lenschow - Barclays - Analyst : Okay. That's great. Thank you.

Question: Howard Ma - Guggenheim Securities - Analyst : Great. Thanks, Greg. I have a question for you. Just to just to drive the point home on a back half ARR. I thought that your ARR definition is based on contracted ARR. So I mean, I could be mistaken, but when you talk about the higher than normal amount of ARR that's contracted to start in Q4, wouldn't that already be baked into your reported ARR today. And and quickly, just on a related note, are you talk about the back half expansions? Is that or the NDR being back half weighted? Is it are you talking just expansions or or are you are you baking in at a good amount of net new red that's new from new logos, but that's in there as well. Thanks.

Question: Howard Ma - Guggenheim Securities - Analyst : It's super clear. I understand that, but thanks, Greg.