Confluent Q1 2025 Earnings Report

Confluent EPS Results

• Actual EPS: $0.08
• Consensus EPS: $0.07
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.05

Confluent Revenue Results

• Actual Revenue: $271.12 million
• Expected Revenue: $264.45 million
• Beat/Miss: Beat by +$6.67 million
• YoY Revenue Growth: +24.80%

Confluent Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 4:30PM ET

Confluent (NASDAQ:CFLT) operates a data streaming platform in the United States and internationally. The company provides platforms that allow customers to connect their applications, systems, and data layers, such as Confluent Cloud, a managed cloud-native software-as-a-service; and Confluent Platform, an enterprise-grade self-managed software. It offers connectors for existing applications, and IT and cloud infrastructure; Apache Flink services that allows teams to create reusable data streams that can be delivered real-time; ksqlDB, a data-in-motion database that allows users to build data-in-motion applications using a few SQL statements; stream governance, a managed data governance suite that is designed for the intricacies of streaming data, which allows teams to accelerate data streaming initiatives without bypassing controls for risk management and regulatory compliance; and stream designer which builds streaming data pipelines visually. In addition, the company offers professional services comprising packaged and residency offerings; education offerings consisting of instructor-led and self-paced training and certification guidance, technical resources, and access to hands-on training and certification exams; and certification programs. It serves banking and financial services industries, as well as retail and e-commerce, manufacturing, automotive, communication service providers, gaming, public sector, insurance, and technology industries. The company was formerly known as Infinitem, Inc. and changed its name to Confluent, Inc. in September 2014. Confluent, Inc. was incorporated in 2014 and is headquartered in Mountain View, California.

Confluent Q1 2025 Earnings Call Transcript

Presentation

[Shane Xie, IR at Confluent]

Welcome to the Confluent Q1 twenty twenty five earnings conference call. I'm Sheng Zhee from Investor Relations, and I'm joined by Jay Krebs, Co Founder and CEO and Rohan Siviram, CFO. During today's call, management will make forward looking statements regarding our business, operations, market and product positioning, growth strategies, financial performance and future prospects, including statements regarding our financial guidance for the fiscal second quarter of twenty twenty five and fiscal year twenty twenty five. These forward looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Further information on risk factors that could cause actual results to differ is included in our most recent Form 10 ks filed with the SEC.

[Shane Xie, IR at Confluent]

We assume no obligation to update these statements after today's call except as required by law. Unless stated otherwise, certain financial measures used on today's call are expressed on a non GAAP basis, and all comparisons are made on a year over year basis. We use these non GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. These non GAAP financial measures have limitations and should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non GAAP financial measures is included in our earnings press release and supplemental financials, which can be found on our IR website at investors dot com.

[Shane Xie, IR at Confluent]

Io. References to profitability on today's call refer to non GAAP operating margin unless stated otherwise. And with that, I'll hand the

[Shane Xie, IR at Confluent]

call over to Jay.

[Jay Kreps, CEO & Co-Founder at Confluent]

Thanks, Shane. Good afternoon, everyone, and welcome to our first quarter earnings call. We're pleased to start the year with solid momentum. Q one subscription revenue grew 26% to 261,000,000.

[Jay Kreps, CEO & Co-Founder at Confluent]

Confluent Cloud revenue grew 34% to a hundred and 40 3 million, and non GAAP operating margin improved six percentage points to 4%. Our q one results demonstrate the mission critical nature of data streaming and our significant product leadership. We remain laser focused on enabling our customers to cost efficiently build next generation applications and win in the age of AI. On today's call, I'd like to walk through four key strategic drivers behind our resilience in the current environment. In fact, our resilience has been tested by multiple macro headwinds since Confluence founding over ten years ago, and it continues to support our path towards delivering long term growth and profitability.

[Jay Kreps, CEO & Co-Founder at Confluent]

First and most critically, data streaming sits at the heart of the mission critical use cases that our customers rely on every day. These are not lightweight experiments. They're the backbone of real production workloads. These applications play a critical role in the day to day business of our customers and can't be turned off without major disruption to core parts of their business. Confluent powers real time fraud detection for financial institutions, inventory management for retailers, five g networks for telcos, and data pipelines that power businesses in countless industries.

[Jay Kreps, CEO & Co-Founder at Confluent]

This dynamic has helped sustain gross retention rate above 90% despite multiple points of instability in the macro environment that reduced IT spend for some of our customers. The second driver of our resilience is the scale of the opportunity we're going after. Apache Kafka has become a foundational technology for data management. Today, it's used by more than a 50,000 organizations, representing a hundred billion dollar plus addressable market opportunity. Soaking up the countless use cases built on Kafka has been a core engine of our growth and continues to be a powerful tailwind.

[Jay Kreps, CEO & Co-Founder at Confluent]

This quarter, we added 340 new customers, our highest net add in three years. And we continue to see robust growth with many of our largest customers as they expand to new use cases. In q one, we added 16 new customers to our cohort of million dollar plus ARR customers, our highest addition to that cohort ever. Our customer base is diversified by industry and by geography, and no single customer accounts for more than two percent of our total ARR. This diversification further strengthens the resilience and durability of our business.

[Jay Kreps, CEO & Co-Founder at Confluent]

Odyssey and Booking.com are two great examples of customers that started with open source and then converted to Confluent. Odyssey is a leading audio entertainment company with 200,000,000 listeners across radio broadcast, podcasts, and other digital content. As their audience grew and customer expectations rose, their old infrastructure began to hold them back. Developers were spending most of their time wrestling with brittle point to point integrations built with open source Kafka. These were difficult to manage and even harder to scale.

[Jay Kreps, CEO & Co-Founder at Confluent]

Delivering new features at the pace the business needed became a major challenge. That's when Odyssey turned to Confluent. Our prebuilt connectors allow them to easily integrate data streaming into their existing tools and systems. Stream governance enables them to quickly and easily enforce data consistency across dozens of different systems and applications. With our complete data streaming platform, Odyssey freed up developer resources so they can focus on innovation instead of managing infrastructure.

[Jay Kreps, CEO & Co-Founder at Confluent]

As a result, Odyssey accelerated feature development by 40%, delivering more personalized experience that keep their customers listening. This helps unlock new digital revenue opportunities across their platform. Booking.com is one of the world's largest online travel agencies. Its mobile app is one of the most downloaded travel agency apps in the world. Booking.com developed an in house data streaming platform based on open source Kafka.

[Jay Kreps, CEO & Co-Founder at Confluent]

However, self managing Kafka became increasingly burdensome as the company grew and introduced new use cases. Scaling clusters, handling updates, and monitoring pipelines consumed significant resources. To alleviate the operational complexities of managing Kafka, Booking.com migrated each business unit's open source clusters to Confluent platform. Our complete enterprise grade solution provided enhanced reliability and out of the box functionality. By spending less time managing infrastructure, Booking.com can now support various mission critical use cases more efficiently, including marketing, payments, personalization, and core booking processes.

[Jay Kreps, CEO & Co-Founder at Confluent]

With a complete data streaming platform that is connected across their business, they were also able to deploy a connected trip experience. This allows customers to seamlessly book flights, accommodations, car rentals, and experiences in one visit. The third driver of our resiliency is meeting customers wherever they are, whether that's on prem, on the edge, in any cloud, or hybrid environment. That flexibility also provides another layer of resilience to our business. It means our growth strategy is less exposed to changes in cloud investment and provides a healthy mix of ratable and consumption based revenue streams.

[Jay Kreps, CEO & Co-Founder at Confluent]

Just as importantly, it lets us land and expand in environments where cloud isn't an option, whether for regulatory reasons, company mandates, or just customer preference. We continue to see strong momentum in this area. Our Confluent platform business had a particularly strong quarter with revenue growth accelerating to 18% year over year, representing its strongest q one growth in three years. And finally, it's not just that our products are better, faster, and more reliable. They're also more cost effective.

[Jay Kreps, CEO & Co-Founder at Confluent]

This is a strong differentiator and provides our customers more value for less money across a wide range of use cases. Our low TCO enables us to expand usage within our existing customer base and also drive new conversions from open source Kafka. It's one of the key levers that helps us retain customers, grow within our installed base, and tap into the broader open source community in a meaningful way. Key to capitalizing on this TCO advantage is offering pricing and packaging that fits the full range of Kafka use cases, from early projects to the most demanding production workloads. With new offerings like WarpStream and Freight Clusters, we're now able to serve high throughput, low latency workloads at attractive price points, enabling our customers to tackle a wider range of use cases.

[Jay Kreps, CEO & Co-Founder at Confluent]

We continue to see strong traction with both offerings in q one, including new customers like Liftoff.io and the next wave of GenAI companies like Cursor and Thinking Machines. Here's an example of how our TCO advantage drives sustained growth with a top 20 global bank. This 5,000,000 plus ARR customer, who most recently increased their spend with us by over 30%, initially relied on open source Kafka. However, the complexity and rising costs of self managing Kafka quickly outweighed the value they received. More than five years ago, they migrated their first use case to Confluent.

[Jay Kreps, CEO & Co-Founder at Confluent]

Since then, we've become a strategic partner as they've transitioned numerous legacy workloads to the cloud. Today, Confluent powers hundreds of use cases across their business, like fraud detection, capital management, regulatory reporting of trade data, and more. By moving to Confluent, they have significantly reduced operational costs, turned their real time data into a competitive advantage, and lowered their TCO. In fact, the customer believes that for every dollar they spend with Confluent, they would otherwise spend $3 managing Kafka themselves. Together, these four factors, mission critical use cases, open source conversion opportunities, hybrid business model, and two c o advantages, have laid the foundation and made our business more resilient through multiple shifts in the macro environment.

[Jay Kreps, CEO & Co-Founder at Confluent]

Additionally, we see continued adoption of our DSP components, which significantly outgrew our core cloud business. Confluent unifies everything organizations need to work with real time data, the ability to stream, connect, process, and govern continuously flowing streams of data all in one platform. This foundation is proving especially valuable as generative AI moves from experimentation to execution. In particular, we're seeing strong interest and adoption for Flink and TableFlow, two of the most recent additions to our DSP. Our complete platform is becoming the connective tissue that brings real time context to our customers' GenAI applications so they can deliver trustworthy and actionable results that work in everyday operations.

[Jay Kreps, CEO & Co-Founder at Confluent]

It's very exciting to see what our DSP enables our customers to do. For example, a leading luxury goods conglomerate with 75 brands and over 6,000 stores worldwide uses our Confluent Cloud for Apache Flink to power its real time order management and drive e commerce growth. The company initially turned to Confluent Cloud to stream order management data to give internal teams accurate real time visibility into product availability. As Confluent proved its value with this first use case, the customer consumed more of our platform, including our fully managed Flink service to prevent inaccurate stock information caused by duplicate data. This customer uses Flink to filter out orders and inventory duplicates and to continuously analyze real time product availability.

[Jay Kreps, CEO & Co-Founder at Confluent]

When high demand items come back in stock, Flink automatically triggers real time alerts to notify waiting customers, enhancing the customer experience and driving incremental revenue. Building on the success of their initial Flink use case, they are now exploring new ways to leverage the technology to streamline and scale product inventory management. Before closing, I'm excited to share two updates. First, Ryan McBann has been promoted to chief revenue officer at Confluent. In this expanded role, Ryan will lead the global field strategy, bringing together sales, sales engineering, customer success, and sales operations to help customers activate real time data to build the next wave of intelligent applications.

[Jay Kreps, CEO & Co-Founder at Confluent]

Ryan joined Confluent last year as senior vice president, global head of sales. He brings over twenty years of sales leadership experience, building and leading top performing teams around the world. Before Confluent, Ryan was president of UiPath Americas, where he drove significant growth across their multiproduct platform. He also held senior leadership roles at VMware and Cisco. Second, we're honored to be named a Google Partner of the Year for the sixth time.

[Jay Kreps, CEO & Co-Founder at Confluent]

This recognition is a reflection of the strong partnership we have with the leading CSPs. Together, we enable organizations to deliver the next generation applications they need to thrive in the age of AI. In closing, we're proud of our strong start to the year. Our commitment to providing the industry's most complete data streaming platform paired with a highly resilient business uniquely positions Confluent to seize the hundred billion dollar plus data streaming market. With that, I'll turn it over to Rohan.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Thanks, Jay. Good afternoon, everyone, and thanks for joining our earnings call. Our first quarter performance underscores the strength

[Rohan Sivaram, Chief Financial Officer at Confluent]

of our mission critical data streaming platform, the strategic value of our multi cloud, multi data destination and multi deployment approach as well as the flexibility of our well diversified growth strategy. Turning to the results, Q1 subscription revenue grew 26% to $260,900,000 exceeding the high end of our guidance and representing 96 of total revenue. Confluent Platform revenue reached a new record of $118,200,000 with growth accelerating to 18%. This momentum was driven by early traction in our partner ecosystem, where OEM showed particular strength internationally. Cloud revenue grew 34% to $142,700,000 representing 55% of subscription revenue.

[Rohan Sivaram, Chief Financial Officer at Confluent]

The revenue impact of lapping the leap year was approximately negative $1,600,000 as Q1 this year had one fewer day for consumption. Turning to the geographical mix of total revenue. Revenue from The U. S. Grew 23% to $156,400,000 Revenue growth from outside The U.

[Rohan Sivaram, Chief Financial Officer at Confluent]

S. Grew 28% to $114,700,000 Moving on to rest of the income statement. I'll be referring to non GAAP results unless stated otherwise. While driving top line growth at scale, we continued to show significant operating leverage in our model. In Q1, subscription gross margin increased 100 basis points to 81.7%, primarily driven by continued efficiency gain in Confluent Cloud coupled with strength in Confluent Platform.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Operating margin was 4.3%, exceeding our guidance of approximately 3% and was primarily driven by revenue and gross margin outperformance. Adjusted free cash flow margin, which excluded the non recurring impact of our compensation change in Q1, was 1.8. The impact of the change to free cash flow margin in Q1 was approximately 14 percentage points. Net income per share was $08 using 367,800,000.0 diluted weighted average shares outstanding. Fully diluted share count under the treasury stock method was approximately 380,900,000.0.

[Rohan Sivaram, Chief Financial Officer at Confluent]

We ended the first quarter with $1,920,000,000 in cash, cash equivalents and marketable securities. Turning now to customer metrics, we ended Q1 with approximately 6,140 customers, representing a sequential increase of three forty customers, our highest sequential increase since Q1 of twenty twenty two. This robust growth underscores the strong value proposition of our multi product platform and our continued success in capturing the open source conversion opportunity. As mentioned at Investor Day twenty twenty five, we will report total customer count on an annual basis and begin reporting 20 ks plus ARR customers on a quarterly basis. In Q1, '20 ks plus ARR customer count increased to 2,487, up 41 customers sequentially and represented more than 95% of our ARR.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Our 100 ks plus ARR customer count increased to fourteen twelve, up 31 customers sequentially and accounted for greater than 90% of our ARR. Our $1,000,000 plus ARR customer count grew to two ten, up 16 customers sequentially, our best quarter in net add for this cohort. NRR for the quarter remained stable at 117%, while GRR continued to be greater than 90%, demonstrating the mission critical nature of our data streaming platform for our customers. Turning to our outlook. For the fiscal second quarter of twenty twenty five, we expect subscription revenue to be in the range of $267,000,000 to $268,000,000 representing growth of approximately 19% non GAAP operating margin to be approximately 5% and non GAAP net income per diluted share to be in the range of $08 to $09 For fiscal year twenty twenty five, we expect subscription revenue to be in the range of $1,100,000,000 to 1,110,000,000.00 representing growth of approximately 19% to 20%.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Non GAAP operating margin to be approximately 6% and non GAAP net income per diluted share to be approximately $0.36 Now I'd like to provide some additional context for our guidance along with a few modeling points. In light of the uncertainties in the current environment, we are widening our revenue guidance range and embedding a modest decline in growth rates from Q2 through Q4. For our cloud business, some of our larger customers began slowing the pace of new use case addition and focusing on cost optimization efforts in March. In contrast, consumption activities in our smaller customer base remained stable. These trends have continued into April.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Given the current macro conditions, we believe it's prudent to assume there will not be a near term rebound in consumption. This contrasts with previous cycles, where we typically saw a subsequent expansion following a period of slower consumption. As a result, we now expect cloud subscription revenue mix to be approximately 58% for Q4 twenty twenty five, with a sequential mix increase of approximately one point each quarter. Finally, we expect fiscal year twenty twenty five adjusted free cash flow margin to be approximately 6%. This excludes, as previously discussed, a onetime headwind of three to four percentage points for the full year due to our compensation change in Q1.

[Rohan Sivaram, Chief Financial Officer at Confluent]

We are confident that our updated guidance coupled with multiple parts to growth sets us up for success this year. Specifically, we see four key drivers of growth in our business. First, the core streaming conversion opportunity targeting an open source installed base of over 150,000 organizations. Second, our DSP upsell opportunities across Connect, Process, Govern and TableFlow. Third, our highly strategic role in the age of AI.

[Rohan Sivaram, Chief Financial Officer at Confluent]

As traditional enterprises accelerate AI adoption, we believe this represents our largest monetization opportunity within AI. And fourth, the leverage we gain from our expanding partner ecosystem, including the OEMs, SIs, MSPs, and other high impact strategic partnerships that help us extend our global reach and accelerate go to market efforts. It's important to note these aren't just cloud only growth vectors. We believe they represent durable growth drivers for both Confluent Cloud and Coffield platform. For example, in Q1, revenue outperformance was driven by on prem momentum with Confluent Platform and its critical role in closing large enterprise deals with our OEM partners.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Our well diversified growth strategy gives us resilience and flexibility, enabling us to continue to drive durable and profitable growth. In closing, our first quarter results are a testament to the resilience of our business and our ability to capture our market opportunity. With a large TAM, category defining technology and an exceptional team, we are firmly positioned to sustain long term growth and profitability. Now Jay and I will take your questions.

[Shane Xie, IR at Confluent]

Thanks, Rohan. To join the q and a, please click on the raise hand icon on the your Zoom screen. When selected for q and a, we ask that you limit yourself to one question and one follow-up. And today, our first question will come from Pinjalim Bora with JPMorgan followed by RBC. Pinjalim?

[Pinjalim Bora, Executive Director, Equity Research at JP Morgan]

Oh, great. Thank you for taking the questions. One one obviously, macro has been top of mind for everybody. I think you said, you've seen some slowdown in new use cases across large customers. Want to ask you, what about existing, kind of use cases, the consumption run rate there?

[Pinjalim Bora, Executive Director, Equity Research at JP Morgan]

Because I would assume that the existing use cases probably drives a bigger portion of revenue than kind of the ramping of new use cases. Right? And, also, from the ACV commitment standpoint, are you seeing any difference, so far in, April, which makes you to kind of, look at the guidance?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. Yeah. Great great question. So, overall, what we said, you know, is that is that we we did see a bit of lower consumption in our larger customers on the cloud side. And so overall, good good quarter, you know, strong growth in CP, solid growth in cloud.

[Jay Kreps, CEO & Co-Founder at Confluent]

You know, this was a combination of optimizations and, you know, slower addition of new use cases. I would say both. Yeah. That that wasn't across the customer base. You know, in our smaller customers, we didn't see that pattern.

[Jay Kreps, CEO & Co-Founder at Confluent]

And it wasn't specific to a single segment, you know, either in terms of international distribution or industry. You know, I wouldn't attribute that directly to macro. You know,

[Jay Kreps, CEO & Co-Founder at Confluent]

I I I think the the way I

[Jay Kreps, CEO & Co-Founder at Confluent]

would explain it is this. Right? We've seen a bit of an oscillating pattern in these larger customers where they tend to, you know, have kind of a cycle of optimization and then additional growth and optimization and growth. In times that were a bit more certain, we would probably bake in the the assumption that that pattern would continue, and we'd see more of a rebound. Given the current environment, we we don't wanna do that.

[Jay Kreps, CEO & Co-Founder at Confluent]

We wanna be a little bit more conservative in how we're looking at that and just kinda play it forward straight through the year. And that's that's what we've done when we've constructed the guidance for this year. Ron, you you may have more to to add to that.

[Rohan Sivaram, Chief Financial Officer at Confluent]

No. I I think I think you covered it, Jay. Pinjalim, I'll take the second part of your question. On the commitments, as you can see from our RPO numbers, q one was strong, both on the CP side where we saw multiyear deals, customers committing multiple multiyear deals. Also, on the cloud side where our our cloud motion continues to be consumption first, but we've seen a lot of customers actually come and commit to multiyear deals on the cloud side as well.

[Rohan Sivaram, Chief Financial Officer at Confluent]

So the ACV commitments in q one was was strong. That's how I'd categorize it.

[Pinjalim Bora, Executive Director, Equity Research at JP Morgan]

Yeah. Got it. Jay, one follow-up for you, and this is more of a high level. Yeah. We we have seen some enthusiasm in the open source community around this idea of a diskless Kafka.

[Pinjalim Bora, Executive Director, Equity Research at JP Morgan]

Yep. Seems like with a new KIP around there, Obviously, that's writing directly to object storage, and and WarpStream has been doing that for for some time now, and you own WarpStream. So I wanna ask you, how do you how do you kind of see the future of Confluent? Is is Confluent overall as as a whole, not just WarpStream? Could it move to a discless future at at some point, or or the latency issues kind of with object storage kind of

[Pinjalim Bora, Executive Director, Equity Research at JP Morgan]

might Yeah.

[Jay Kreps, CEO & Co-Founder at Confluent]

We we've actually it's a

[Jay Kreps, CEO & Co-Founder at Confluent]

great question. Yeah. We we've actually done that in both our cloud and with WarpStream. You know, we're actually very intelligent about the the use of storage. And so our freight clusters use kind of a pure discourse approach.

[Jay Kreps, CEO & Co-Founder at Confluent]

Our other clusters use a combination of storage technologies across the memory hierarchy to optimize it. There's a fair amount of sophistication in that layer, and it actually matters a lot when you think about the cost characteristics and the kind of performance trade offs. That's definitely an area we put, you know, a fair amount of r and d effort.

[Shane Xie, IR at Confluent]

Thank you so much. Alright. Thanks, Pindulam. We'll take our next question from Matt Pepper with RBC followed by Wells Fargo.

[Matthew Hedberg, Managing Director, Software Research at RBC Capital Markets]

Hey. Great. Thanks guys for the questions. Congrats on the quarter. Not an easy environment at all.

[Matthew Hedberg, Managing Director, Software Research at RBC Capital Markets]

Jay, you know, it's great to hear the success in DSP. Think you called out Flink and table flow in particular. I'm sort of curious. I think, you know, four q, you called out DSP was 13% of your cloud business. I'm wondering if you could sort of quantify how that improved sequentially.

[Matthew Hedberg, Managing Director, Software Research at RBC Capital Markets]

And then, you know, maybe just a little bit more on Flink. It it really seems to be coming up more and more in our in our partner checks. Wondering where you're seeing some of the earliest adoption there.

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. You know, I'll I'll give you some characterization. You know, our our intention with that kind of DSP percentage is to come back to that periodically, but not every single quarter. And so, you know, here's here's what we're seeing. So a ton of enthusiasm.

[Jay Kreps, CEO & Co-Founder at Confluent]

You know, overall, like, sentiment in the company is the DSP offerings are on, you know, great success trajectory, significantly outgrowing the kind of core cloud business. And, you know, we've kinda been through this before. As that stuff starts to get to scale, it moves the overall numbers. And a lot of enthusiasm from customers. You know, we just released table flow as GA in AWS.

[Jay Kreps, CEO & Co-Founder at Confluent]

You know, great early signs for that. And then Flink is succeeding really nicely both in the cloud as well as in CP. We've we've added this to our CP offering and picked up some really sizable customers on that doing awesome use cases. And so, you know, I think this is still the early innings for the, you know, the offerings on both sides, but great initial success. In the cloud, you know, these kind of serverless offerings, you start with kind of a broad base of simple use cases, then you start to build to these more mission critical large conversions where people are moving, you know, dozens or hundreds of different processing jobs over.

[Jay Kreps, CEO & Co-Founder at Confluent]

And that that's, of course, when you start to see, you know, the the real money move. And, you know, we're starting to win some of those kind of larger customer engagements. We're putting in a ton of work to make sure we can really deliver against these big migrations, and, you know, that's that's a real focus in the team. But overall, you know, I do think that there's a significant push inside companies towards real time in the use of data. We're we're seeing this pattern around, we would call it, shift left where, you know, a lot of what cuss customers were doing with data is moving upstream into the real time area so that it can go to multiple destinations so that it can land in their analytics environments faster and so that it can be part of the use of AI applications, which often need that.

[Jay Kreps, CEO & Co-Founder at Confluent]

And, you know, for all those reasons, I think we have great, you know, great tailwinds in that area. You know, we we ultimately don't bake a ton of that, you know, product success into our guidance. You know, it's it's often hard to forecast these new things, you know, something like table flow that's just coming out to GA right now. You know, we we would have internal goals, but when we think about our financial plan for the year, we wouldn't have something attached to that until we really see it perform. But the initial signs are very promising in terms of the build of pipeline and customer conversations.

[Matthew Hedberg, Managing Director, Software Research at RBC Capital Markets]

That's that's fantastic. And then maybe just one for Rohan. I think, you know, I think the reduced guidance makes a lot of sense to us just given the macro and appreciate of the conservatism there. You know, coming off of a record quarter at least from the past several years of new customer adds, I'm wondering how you're thinking about the, you know, the relative rate of customer adds versus NRR. I mean, are you assuming that that NRR comes down a little bit, new customer adds?

[Matthew Hedberg, Managing Director, Software Research at RBC Capital Markets]

Just kind of the components of that would be helpful.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Yeah. Matt, sure thing. I mean, I'll I'll make a couple of comments on guidance, and then I'll get to your question on NRI and customer count. I mean, you know, as you called out, our guidance philosophy has been very consistent. And how we've approached it is disciplined approach and set current targets.

[Rohan Sivaram, Chief Financial Officer at Confluent]

And Jay talked about the dynamic around consumption. On the CP side, we did see good momentum in q one. Our visibility for q two remains good. So that's kind of driving our outlook for q two and rest of the year. But if I take a step back and look at the guidance, what I'll tell you is we're looking at a guidance of 19 to 20% for the year at a billion dollar plus scale.

[Rohan Sivaram, Chief Financial Officer at Confluent]

And we're doing that with what I would call a fairly prudent setup for us. And, you know, and we have multiple vectors of growth as we look at it, which includes streaming, which includes DSP, the AI, as well as the partner ecosystem. So that's a little bit about the guidance and, you know, why we feel good with the setup that we have right now. To your question around customer account, that's right. I mean, that entire ecosystem of customer account, not only total customers on one bookend, but also million dollar plus customers.

[Rohan Sivaram, Chief Financial Officer at Confluent]

We had the best quarter from a million dollar plus customers. That tells you that, you know, top of the funnel, obviously, we are adding a lot of customers into the Confluent ecosystem. Our 20 k customer tell you the amount of, I would say, high high intensity, high frequency customers who can spend a lot with us. That's that shows the core customer count. And million dollar plus customers is just how we are pushing them through the funnel.

[Rohan Sivaram, Chief Financial Officer at Confluent]

So overall, we feel good. And our last couple of quarters has been, give or take, around the 17% range. And, you know, what supports that NRR is our consistency on the GRR side. That's callout number one. We've been greater than 90% since we've been a public company.

[Rohan Sivaram, Chief Financial Officer at Confluent]

And on the expansion side, you know, the dynamics that we called out on the consumption side could have an impact. But if I think about NRR, it should be in that ZIP code of 17% as we look ahead.

[Matthew Hedberg, Managing Director, Software Research at RBC Capital Markets]

Well done, guys.

[Shane Xie, IR at Confluent]

Thanks, Matt.

[Shane Xie, IR at Confluent]

We'll take our next question from Michael Turn with Wells Fargo followed by Morgan Stanley.

[Michael Turrin, Managing Director, Software Equity Research Analyst at Wells Fargo]

Great. Thanks. Nice to see everyone. I appreciate you taking the questions. Jay, I want to start with something that was, I think, very top of mind at the Investor Day, which was just some of the AI related use cases.

[Michael Turrin, Managing Director, Software Equity Research Analyst at Wells Fargo]

You've mentioned Cursor a couple of times, Investor Summit on this topic. Certainly, it seems to ebb and flow. But can you just help add some context around what you're seeing in terms of AI related demand if there are certain use cases you're finding you'll have strong product market fit as those evolve and just how we should start to expect some of this to evolve over a longer period of time.

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. Absolutely. So, you know, we've we've seen success kind of in two dimensions in the AI area. I mean, first, selling to AI companies like like Cursor, as you mentioned. The other is the kind of enterprise uses of AI where we're you know, we're really fulfilling two roles.

[Jay Kreps, CEO & Co-Founder at Confluent]

You know, one is this data supply chain for getting the data that fulfills the context for some of these AI applications. The second is, you know, for these agents that are actually acting on things in real time. You know, the the use the more sophisticated use of data has often been, you know, some batch job at the end of the day, but the point of these agents is to get into the real time flow of things. And we are starting to see those use cases emerge. I would say that's earlier, you know, of the two.

[Jay Kreps, CEO & Co-Founder at Confluent]

But but I think it's a pattern that's quite durable. You know, we we've done a fair amount of writing and kind of thought leadership in this area and really seeing kind of a community of interest forming around this in our customer base and and well beyond in the larger community. So I think that's very promising.

[Michael Turrin, Managing Director, Software Equity Research Analyst at Wells Fargo]

Just as a follow-up, if I may, just beyond the the consumption patterns in in terms of some of the things you're contemplating with guidance, Sounds like newer products are just lower assumptions in the earlier stage. But are there certain milestones we should be thinking about in terms of go live with some of the newer products? And then on the go to market transition, maybe just help us with what you've seen from Ryan and how you're thinking about the the the shape of productivity you could see throughout the year.

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. Yeah. So I'm really excited to be working with Ryan. You know, any of these executive roles, we obviously do, you know, very broad outside search and look inside as well and, you know, met a lot of people in the process. And, yeah, I felt like, internally, we had somebody who had, you know, a ton of strength in execution, you know, was a strategic thinker and understood what we were doing as a business, the space we were operating in.

[Jay Kreps, CEO & Co-Founder at Confluent]

It would be an awesome part of the executive team and leadership of the company. So I feel really good about the changes. Obviously, also less disruptive because you have somebody who's already managing the full set of sales reps just kinda taking on additional responsibility, and you have somebody who had kinda proven themselves on the field versus, you know, taking a shot on somebody new coming in and adjusting to our space. So I feel really good about that and, you know, excited about what we can do in the year ahead. You know, obviously, less changes overall on the go to market side this year than last year as, you know, last year, we're doing this bigger set of consumption changes.

[Jay Kreps, CEO & Co-Founder at Confluent]

So, you know, I I think overall, that's, you know, a positive setup for us.

[Rohan Sivaram, Chief Financial Officer at Confluent]

And then remind remind me of the other part of the question.

[Michael Turrin, Managing Director, Software Equity Research Analyst at Wells Fargo]

Just on some of the new products. So there are there timelines we should be thinking about where, you know, this could start to see a steeper adoption ramp just based on the

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah.

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. The the the two things that I think are in our mind, you know, we're we're, you know, we've we've started to get this connect business to scale the business around the connectors. You know, we're now able to do much more of the kind of lift and shift of existing use of open source Kafka Connect and bring that into our platform. We feel pretty good about that motion. So now it's kinda taken that to scale.

[Jay Kreps, CEO & Co-Founder at Confluent]

For Flink, you know, it really is about these larger customers and use cases. You know, taking the any kind of cloud layer that does data processing is basically a programming framework where you're writing effectively complete programs in SQL or Java and, you know, the ability for customers to take things that they've done and migrate in and really get to scale with that across big complicated production use cases. As we start to make more of those successful more quickly, that's kind of the, you know, the motion to start bringing more and more onto the the cloud offering there. CPFLINK, I think, is off to a a nice start with customers. You know, that's kind of an easier process of lift and shift.

[Jay Kreps, CEO & Co-Founder at Confluent]

And then table flow is, you know, just out of the starting gates. So the big milestones there are getting it across all the clouds, opening up the integration with Delta and Unity, the Databricks technologies that, you know, we've kinda promised to our customers and are working with Databricks around. You know, both of those are exciting milestones. I think we'll start to see that get out to early customers and have a better sense of the trajectory, you know, in the coming quarters.

[Michael Turrin, Managing Director, Software Equity Research Analyst at Wells Fargo]

Thanks very much.

[Shane Xie, IR at Confluent]

Alright. Thanks, Michael. We'll take our next question from Sanjit Singh with Morgan Stanley followed by Deutsche.

[Sanjit Singh, Executive Director at Morgan Stanley]

Yeah. Thank you for taking the question. As we sort of enter this period of uncertainty, it sounds like the business coming in is quite healthy and really impressive customer ad metrics, you know, across the board. One of the things I'm trying to, you know, try and get a handle on, I'm sure, we're all trying to get a handle on, is that if optimization activity comes back online, how to compare it maybe to what we saw in the back half of twenty twenty two throughout 2023 when there was, you know, kind of a more widespread optimization activity across the customer base. So in that spirit, Jay, I was wondering if you could talk about maybe the profile of the business back then in the second half of twenty two and twenty three versus what's driving growth in your customer base today?

[Sanjit Singh, Executive Director at Morgan Stanley]

And if we did see another round of optimization activity, how would you compare it versus the the last cycle?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. You know, I I I would say the probably the biggest change in the business, you know, between those two time frames is I do think customers have done a lot of this. You know, when you think about, you know, effectively what we went through nineteen, twenty, twenty one, there was kind of a run up in cloud spend and a big push on just build, build, build, new stuff, new stuff, new stuff. And in that environment, you do get a lot of, you know, effectively unoptimized cloud usage in a variety of ways. And, you know, probably the companies with the consumption model as we as we have for our cloud, you know, saw the run up of that the fastest.

[Jay Kreps, CEO & Co-Founder at Confluent]

And then, you know, of course, also in that consumption model, it's easier then for you know, the customer should be able to, you know, make sure they're really getting the full value out of it, and, you know, that will take down the spend. I think the difference now is a lot of that has been done. Right? So we do see refinement in customer usage, but but I don't think that there's nearly as much of a you know, I I think there's a lot more tightness in the base of the cloud usage than there was at that time period.

[Sanjit Singh, Executive Director at Morgan Stanley]

Yeah. So maybe the the the range of outcomes is maybe narrower than than it was in

[Jay Kreps, CEO & Co-Founder at Confluent]

I I think that's probably right.

[Sanjit Singh, Executive Director at Morgan Stanley]

Yeah. And so picking up on the strong Confluent platform performance, the acceleration 18%, I was wondering if you sort of view that as a structural change, as some of the knock on effects from some of the the policies, the macro policies that have been the policy debate around customers toggling a little bit more to self managed given potential actions on digital services, those type of things. And so do you see con do you see sort of Confluent platform and put some of the innovation around around CPFLINK? Is that now more of a a a better grower for the product portfolio in your view?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. I I think it's too early to say to make that call. You know, what we saw in q one was actually just really good performance in CP. You know, I don't think those deals obviously have some time line to build, so it wasn't, you know, directly in relation to tariffs or anything like that. It just wouldn't happen that quickly.

[Jay Kreps, CEO & Co-Founder at Confluent]

You know? So so what we have, you know, what we have seen, I think, is probably a ton of exuberance about cloud heavy investment, and I would say maybe a more measured cloud and on premise strategy in some of the larger enterprises. And, you know, what you're saying is relevant, right, which is, hey. You know, if if companies are internationally are more concerned about the interaction with The US, you know, could there be more pressure on cloud usage? It's certainly possible.

[Jay Kreps, CEO & Co-Founder at Confluent]

I mean, I I don't see any kind of major pullback from the cloud, but, you know, it's certainly possible. The one thing I would say is, you know, Confluent has intentionally built to be highly resilient, you know, across that. And so to some extent, we're not taking a hard bet on one side or the other. We've continued to invest in Confluent platform. We've continued to add functionality that there wasn't as much growth in data center usage for a period of time.

[Jay Kreps, CEO & Co-Founder at Confluent]

If there's a bit more, CP will probably grow a bit faster. You know, if that's not the case, cloud will grow faster. You know, we're basically happy to support customers wherever they are. I I don't you know, I wouldn't expect a large scale pullback from the cloud just because we've, as an industry, kinda come to just rely so heavily on it. So, you know, I think it'd be premature to call any of that.

[Jay Kreps, CEO & Co-Founder at Confluent]

But the, you know, the key point for us is making sure we're in a great place with customers one way or the other. And I will tell you that this ability to serve customers, multi cloud and hybrid, has become really top of mind for for a lot of these companies as they are just starting to think about, you know, the the balance of investment, what they're doing, what's happening with some of the legacy stacks, etcetera. You know, I I think that's turned into a real asset in a way that, you know, maybe four years ago was more hypothetical. You know, now is just a very concrete must have.

[Sanjit Singh, Executive Director at Morgan Stanley]

Yeah. I appreciate the perspective. Thanks, Jay.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Sanjay, I'll add another, I would say, slightly different lens to what Jay just shared. Know, when you look at our million dollar plus customers today, and we added net 16 customers, the highest we've had, the mix of that is very balanced across our portfolio. For example, like, seven of those customers were driven by CP expansions or driven by CP. And then, you know, 50% of them are currently hybrid customers. Mhmm.

[Rohan Sivaram, Chief Financial Officer at Confluent]

And 13 out of those 16 customers actually had DSP in it. So fairly balanced. And I think that's that's something that we feel good about.

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. Yeah. I think another way to look at this is, you know, as we were going public, I think there was concern because our cloud revenue base was smaller. Like, hey. Can these guys really be successful in the cloud?

[Jay Kreps, CEO & Co-Founder at Confluent]

You know? Can they really take a leadership position there? And, you know, at least personally, I think that question's kinda answered. At this point, we, you know, really have a leadership product leadership, I think, in the cloud, product leadership on premise, and a really good hybrid story. And so we feel at this point, it's kind of, you know, the customer's choice how they want to buy.

[Sanjit Singh, Executive Director at Morgan Stanley]

Awesome. Thanks for the perspective.

[Shane Xie, IR at Confluent]

Alright. Thanks, Sanjay. We'll take our next question from Brett Zelnick with Deutsche Bank followed by William Blair.

[Brad Zelnick, Managing Director at Deutsche Bank]

Great. Thanks so much, guys. Nice to see everybody. I wanted to follow-up on Sanjit's question. I mean, such a strong CP quarter out of the gate here in q one, and I think, you know, within that term license is up, like, 60% year on year.

[Brad Zelnick, Managing Director at Deutsche Bank]

And if I listen carefully to your comments, Rohan, in the prepared remarks, you you've mentioned the OEM relationships in international. I don't typically think of you guys as a strong OEM company, maybe not like Microsoft, but maybe I'm just not listening well enough. Can you just expand a little bit more on the nature of these types of relationships, the visibility you have to these deals, the typical term length? And what is the better together story with these types of relationships?

[Rohan Sivaram, Chief Financial Officer at Confluent]

Yeah. Happy to take that, Brad. You know, from from an overall CP business perspective, as you rightly called out, q one was a strong quarter, 18% growth. But I I've said this before. For CP, I think looking at this business over a twelve month period is actually a much better indicator.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Typically, timing of some of these larger deals, timing of these renewals, which are large, could have an impact on in quarter revenue. But if you look at it from a twelve month lens, you'll see the consistency in the CP performance. And, historically, we've called out strength from regulated industries. And over the last couple of quarters, we've been talking about our focus around the partner ecosystem. And some of these OEM deals, I think, in a very simple manner, it just helps us amplify our message and, you know, send basically sell through as well through a lot of our OEM partners.

[Rohan Sivaram, Chief Financial Officer at Confluent]

So this particular OEM deal that we called out was primarily on the international side, which was strength, but it's not just from OEM. It's also from multi multiyear deals that we also had in q one. And as we look at rest of the year, I think the visibility is, you know, we'll see a good momentum in CP for rest of the year, primarily because of the reasons that Jay just laid out.

[Brad Zelnick, Managing Director at Deutsche Bank]

That's very helpful. If I could just follow-up. Thank you for, you know, continuing to call out the impact from the change in comp on free cash flow. Anything else, Rohan, at this point in the year as we think about the the, you know, the the remainder that would, you know, swing the the growth and trajectory of free cash flow versus net income growth that we might wanna keep in mind? Thanks so much.

[Rohan Sivaram, Chief Financial Officer at Confluent]

No. Our adjusted free cash flow goals for the year is approximately 6%. And, you know, outside of this onetime impact, we don't see any kind of adjustments out of our free cash flow number for rest of the year. So, historically, what we've said outside of these timing of comp payments or timing of commission payments, generally, the free cash flow tends to go in line with the operating margin. And for the full year, for sure, kind of they are pretty closely related, and that's what you're gonna see for rest of the year.

[Brad Zelnick, Managing Director at Deutsche Bank]

Excellent. Thank you again, guys.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Alright. Thanks, Craig.

[Shane Xie, IR at Confluent]

Thank you. We'll take our next question from Jason Ader with William Blair followed by Nita.

[Jason Ader, Co-Group Head - Technology, Media & Communications at William Blair]

Yeah. Thanks, Shane. Good afternoon, guys. How do you explain the strong net adds in one? Is it just the go to market changes that you made last year, or is there anything else going on?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. There there's a set of things. You know, you you have to look at it a little bit as Rohan said by the tier of customers. You know, the folks entering the million dollar plus is obviously a different explanation from that kind of top of the funnel total customer count ads. You know, at that top of the funnel side, I would say we've made a set of improvements in, you know, the product led side of the business, and we feel like that, you know, has has kind of picked up a little bit of steam.

[Jay Kreps, CEO & Co-Founder at Confluent]

On the million dollar plus side, it really is just, you know, customers continuing to progress in their streaming journey and helping them along. You know, it's rare that companies start there. They usually start a bit smaller and and grow into it. So that's just an evolution usually of work we've been doing with them, over, you know, a year, multiyear, really depending on the the case.

[Jason Ader, Co-Group Head - Technology, Media & Communications at William Blair]

Okay.

[Jason Ader, Co-Group Head - Technology, Media & Communications at William Blair]

And then, a quick follow-up on on for you, Jay. Just do you think the macro uncertainty will actually stretch out AI deployment timelines for customers?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. You know, it's a it's a good question. It's a hard one to answer.

[Jay Kreps, CEO & Co-Founder at Confluent]

Know, we like, what have we actually seen so far? So, you know, it's not the case that we've seen a bunch of projects put on hold or some, you know, sizable change yet, but it definitely is on the minds of customers. You know, we have customers who are car companies or retailers, and they're thinking about this. And I I think the answer is they're not sure, and and I haven't seen the action yet. But, certainly, when we're thinking about, you know, our guidance, the trajectory for the rest of the year, it makes us, you know, more cautious and conservative than what we're doing.

[Jason Ader, Co-Group Head - Technology, Media & Communications at William Blair]

Thank you.

[Shane Xie, IR at Confluent]

Alright. Thanks, Jason. We'll take our next question from Mike Sikos with Needham followed by Mizuho.

[Mike Cikos, Senior Analyst at Needham & Company]

Great. Thanks, Shane, for getting me on, and and thanks for taking the questions here, guys. Jay, if I just come back to the consumption dynamics that we're talking to here, know we've seen typical, oscillations from all your customers before. With what played out in one q, just curious, can you give us, any more color on when that started to evidence itself? Was it towards the back March?

[Mike Cikos, Senior Analyst at Needham & Company]

Was it the final couple of days? And then now that April's essentially in the rearview mirror, has that in any way deteriorated further, or are we kind of stable from where we were ending March?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. Yeah. So, yeah, we we we saw this in March. You know, what wasn't just the last few days. You know, we we certainly saw some impact through March.

[Jay Kreps, CEO & Co-Founder at Confluent]

And then we've seen stability, but but not an immediate rebound in April. And that's, you know, kind of thinking of you know, thinking about that, thinking about just the larger environment. That's what, you know, made us more cautious overall in the the cloud guidance.

[Mike Cikos, Senior Analyst at Needham & Company]

Got it. And for the the follow-up, I I think it went to, Rohan with the prepared comments. But one of the reasons you attributed some of the strength for Confluent platform was specifically tied to the partners in international. Is it fair to think that with your the the traction you're seeing with your partner ecosystem, CP, this is, call it, an incremental growth factor here just because certain geographies have a preference or a greater desire to go for CP over cloud?

[Rohan Sivaram, Chief Financial Officer at Confluent]

Yeah. Mike, I mean, when I when I think about the growth drivers for us, I called out four growth drivers. The streaming opportunity, ESP, which is not only net new, but also expansion to our existing customers, AI, as well as the partner ecosystem, which includes SI, GSIs, OEMs. These are all not only Confluent Cloud, but they're also Confluent platform opportunities. So I think that's that's probably one thing that I wanted to call out.

[Rohan Sivaram, Chief Financial Officer at Confluent]

I also called out in my prepared remarks. So short answer to your question is yes. It's across the board. And our strategy around being the Puerto Rico or the Switzerland where, you know, multidata destination, multi cloud, and also, you know, multiform factor is helping, win the current environment.

[Mike Cikos, Senior Analyst at Needham & Company]

Thank you, guys.

[Shane Xie, IR at Confluent]

Alright. Thanks, Mike. We'll take our next question from Gray Moskowitz with Mizuho followed by Cowen.

[Gregg Moskowitz, Managing Director, Enterprise software at Mizuho Financial Group, Inc.]

Great. Thank you for, for taking the questions. Jay, wondering if you could give us an update on WarpStream. Since acquiring the company, have you, been able to close any meaningful transactions? And if so, has all of that come from the work stream pipe, or was some of this, you know, Confluent generated as you start to, integrate it into the fold of the the the rest of the go to market, so to speak?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. Yeah. So so we've definitely had some really nice customer wins. I I think we've shared a few of those. I we've mentioned Cursor, but there's been a set of others that we brought forward in some of the past earnings.

[Jay Kreps, CEO & Co-Founder at Confluent]

And, yeah, those are a mixture of some things that were you know, a few that were already in the pipeline, but we're actually seeing great activity and a set of wins, you know, across the larger team. And it's not surprising. You know, this this is something that was very close to home, filled a kind of natural niche in our product portfolio, and was ready to sell. And so we kinda knew coming in this would be one that could potentially hit the ground running, and that's what we've seen.

[Gregg Moskowitz, Managing Director, Enterprise software at Mizuho Financial Group, Inc.]

Alright. Fantastic. And then just for Rohan, as part of the revised 2025 guide, you mentioned you're not assuming a near term rebound in consumption. But maybe, you know, if we were to look at the other side of the coin, I'm just curious if any thought was given to assuming a a further weakening of these trends just given greater unpredictability of the macro or, you know, from where you sit from your perspective, does it just seemed difficult to envision things degrading from here.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Yeah. I I think the way we thought about it was, again, make sure that we have a prudent setup for rest of the year. So, you know, what are what are the what are the two big assumptions behind it? We spoke about it, but I'll reiterate it because it's important. First, for our larger cloud customers where, you know, we did see some cost optimization slowdown in net new use cases, you know, we are not assuming an immediate near term rebound in their consumption patterns.

[Rohan Sivaram, Chief Financial Officer at Confluent]

If you compare and contrast that with history, we've seen that, you know, historically, we've seen a rebound after optimization pattern. And, you know, you've heard us call out this sawtooth pattern that we see. We're not assuming that same shape. That by itself provides some prudence to our guide as we look for rest of the year. For Confluent platform, it's slightly different because, of course, as Jay mentioned, you know, these are deals that are already in the works.

[Rohan Sivaram, Chief Financial Officer at Confluent]

You have visibility into the pipeline. You have so so our guide is based on a lot of visibility in the pipeline that we have from con Confluent platform. And I think the final takeaway from my perspective is if you take a step back and you look at our guide, we're calling for 19 to 20% at a greater than a billion dollar run rate, but we're not assuming any form of acceleration in the back half of the year. I think that setup makes us feel good as we, you know, head into what I'd call uncertain times. Yeah.

[Gregg Moskowitz, Managing Director, Enterprise software at Mizuho Financial Group, Inc.]

Very helpful. Thanks, Rohan.

[Shane Xie, IR at Confluent]

Alright. Thanks, Greg. We'll take our next question from Derrick Wood with TD Cowen followed by Barclays.

[Derrick Wood, Managing Director at TD Cowen]

Great. Thanks for taking my questions. Start with Jay. Anything to share around what kind of demand reception you've seen from table flow since it went GA? And just curious how to think about the revenue benefits.

[Derrick Wood, Managing Director at TD Cowen]

Is there a separate charge for table flow, or is it more about just bringing new workloads onto the core platform?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. It's a great question. So the the reception has been extremely strong. Now, you know, it's it's difficult, of course, for new products to figure out exactly how fast it will ramp and, you know, exactly to what size. So we're we're always cautious when we try and, you know, forecast anything around it.

[Jay Kreps, CEO & Co-Founder at Confluent]

But but I would say, overall, it's about as strong as we've ever seen for any new product, and we're very excited about it. It'll take us some time to get it across all the clouds and across all the different formats to fully open up and capitalize on the opportunity that will happen over the course of this year. It it is priced separately, so there's additional charges directly for the table flow usage. But, actually, the bigger opportunity in what we've seen with customers is, yeah, they they actually start to bring new datasets on entirely. Right?

[Jay Kreps, CEO & Co-Founder at Confluent]

So so they'll they'll spend some on table flow, but they'll spend some on connecting Kafka and Flink along with that. And so, you you know, so the opportunity on is is really on both sides. And, you know, I think one of the reasons we're particularly excited about it is it's a very easy product to enable for existing data. You know, you can kinda just turn it on. It doesn't require a ton of development work.

[Jay Kreps, CEO & Co-Founder at Confluent]

And so we we feel like, hey. As we really crack this and, you know, learn how to take it to market, it it will be something that we can, you know, ramp relatively quickly. But but, of course, we have to first get it to GA and all the clouds and and make it fully available over the course of this year to be able to do that.

[Derrick Wood, Managing Director at TD Cowen]

Great. Thanks. And then, Rohan, I mean, thanks for the color on the on the change in in guidance assumptions. I wanted to ask about the government side of things. First, could you give us a sense of kind of how big of a business public sector or U.

[Derrick Wood, Managing Director at TD Cowen]

S. Fed is? And then maybe talk about pipelines and how you may have changed your assumptions in the second half of this year, given all the new developments on the on the dose side of things?

[Rohan Sivaram, Chief Financial Officer at Confluent]

Yeah. Derek, thanks for your question. When when we think about the government opportunity, I I always put the government opportunity in the category of, you know, the opportunities ahead of us because it's fairly underpenetrated. You know, for context, our exposure to the federal government is in the low single digits, so not material. And, you know, the shape of the business is consistent with what you see in other companies.

[Rohan Sivaram, Chief Financial Officer at Confluent]

You know, q three tends to be a stronger Fed quarter. And, you know, and some of these data points are baked into the guidance that we that we set. So short answer, it's it's obviously fairly underpenetrated, big opportunity. And, you know, we spoke about getting FedRAMP status from a technology perspective. Now we are working with our government partner to get formal FedRAMP status that will obviously open up the cloud business for us with the government as well.

[Rohan Sivaram, Chief Financial Officer at Confluent]

So that's how we're thinking about it. Small small benefit.

[Jay Kreps, CEO & Co-Founder at Confluent]

And I I I think

[Jay Kreps, CEO & Co-Founder at Confluent]

fair to say that in the current environment, you know, very modest expectations for that area this year. Right?

[Rohan Sivaram, Chief Financial Officer at Confluent]

That's right. Very modest expectations.

[Derrick Wood, Managing Director at TD Cowen]

Perfect. Thank you.

[Shane Xie, IR at Confluent]

Alright. Thanks, Derek. We'll take our next question from Raimo Lenschow with Barclays followed by Stifel.

[Raimo Lenschow, Managing Director at Barclays]

Hey. Thanks for squeezing me in. Two quick questions. One, Rowan, as you thought about the guidance, you you mentioned more the larger accounts had the the issues. How do I think about that?

[Raimo Lenschow, Managing Director at Barclays]

Like, you know, in in theory, this could play out two ways. So so the larger account just do a little bit, and then it's all good again, or it kind of goes down deeper into larger accounts somewhat first, and then SMB has a problem. So if you when you thought about guidance, how did you kind of thought about that kind of reflecting that? And then one for Jay, if you think about obviously, there were kind of movements from other players in the broader ecosystem to think more about acquisitions in your space. Did you see anything in the customer conversations that they realized, okay.

[Raimo Lenschow, Managing Director at Barclays]

Real time is a lot more important. You know, people are trying to beef it out. Are you seeing the benefit on that conversation that they they realize, okay. You are actually the real time company, so I should talk with more with you. Thank you.

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. To to the second part of the question, you know, I I do think that there's definitely been change in the perception of streaming, but I wouldn't say it's a step change. I mean, the you know, in our space, I feel like people always expect there to be a single event that triggers it. But what we've actually seen is a real build where this went for something that was viewed as kind of niche and on the side, like, what could you really do with it? Just something that, of course, every company is doing but isn't necessarily part of the top line strategy.

[Jay Kreps, CEO & Co-Founder at Confluent]

Just something that's really, like, a major part of data strategy. And I think, you know, these kind of things always help that along, but there's no one event that kinda, you know, goes from zero to a %. And so, yeah, certainly, that comes up in conversations with customers. I don't think it's a huge catalyst on their side in terms of how they're thinking about things. But but there's no question that just you know, if I were to just kinda go back on two year increments and cap you know, describe what, you know, what is the conversation with the average CIO seem like.

[Jay Kreps, CEO & Co-Founder at Confluent]

You know, kinda went from nothing. What is any of this stuff to, like, okay. Apache Kafka, yes. But, like, why does it matter and what is Confluent to, like, really a broader appreciation of what's possible with streaming, you know, what Confluent is, what could potentially be doable in the stream processing world as they think about kind of the real time use of data. And, you know, that's not universal.

[Jay Kreps, CEO & Co-Founder at Confluent]

You know, it's not everybody has that understanding, but just more broadly across the industry that's changing. And I think it's a really powerful thing when you think about, you know, there there's a certain inevitability to the move to, you know, streaming and real time data. You know, it's a certain just aspect of how companies are changing, and I do think that that benefits us.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Yeah. And and, Raimo, to your first part of the question, you know, for our smaller customers or not larger customers, our consumption patterns have been fairly steady. And I that's that's a good news. And, also, when you look at the net new customer ads that we have, a vast majority of our top of the funnel net new ads come on the cloud side. So, you know, there is a steady stream of consumption, customers flowing in.

[Rohan Sivaram, Chief Financial Officer at Confluent]

So the variation in that middle segment is a lot less. So, you know, that's why we feel good with the outlook that we have for rest of the year.

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. Yeah. And kinda adding to that a little color. You know, it's like when you look behind the curtains kinda customer by customer and the large customers, it's like, okay. Is there some pattern or some big, you know, event that's taking place?

[Jay Kreps, CEO & Co-Founder at Confluent]

Is there any reason to believe that would kinda spread? There there's really not. You know? It's it's just kind of the normal, like, customer activity you would see around infrastructure and optimization. And, of course, the smaller customers do just have a certain law of large numbers in terms of how they operate.

[Jay Kreps, CEO & Co-Founder at Confluent]

So so, yeah, we we don't see any kind of emerging trend there. When we put the pattern together, you know, we certainly saw very strong pipe gen in the quarter. So kind of that top of funnel of what's coming in is really good. So we didn't we didn't see some kind of overall systematic softening of, you know, the demand environment or anything like that.

[Raimo Lenschow, Managing Director at Barclays]

Perfect. Very clear. Thank you.

[Shane Xie, IR at Confluent]

Alright. Thanks, Raimo. Our next question comes from Brett Reback with Stifel with our final question coming from Raymond James. Brett?

[Brad Reback, Managing Director at Stifel Financial]

Thanks. Just had to get the audio there. Appreciate the, the opportunity. You know, as you kinda look at the business going forward in the the dynamic macro, have you made any changes to your OpEx plans internally? Are you cutting back on travel?

[Brad Reback, Managing Director at Stifel Financial]

Are you spending a little less? And if you haven't done that yet, what potentially would cause you to do that?

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. We we haven't done anything, particularly aggressive, but we always manage expenses, you know, along with the top line. So, you know, we would obviously watch what happens throughout the year and make adjustments. You know, we've certainly operated over the life of the company through very dynamic times and done all kinds of things around that. So so, yeah, there there's not been any big adjustment at this point.

[Shane Xie, IR at Confluent]

Great. Thank you. Alright. Thanks, Brad. Our final question today comes from Mark Cash with Raymond James.

[Mark Cash, Associate Analyst - Equity Research at Raymond James]

Alright. Thanks, Shane. For yeah. For Jay, you mentioned how last year a lot more go to market adjustments with the quota alignment. Now thinking about this year and having more products and employment options to sell, so how would you characterize sales productivity?

[Mark Cash, Associate Analyst - Equity Research at Raymond James]

And I think in particular, can most reps and partners go out and incrementally sell DSP use cases or sell work stream and freight versus SunCloud and platform previously? Thank you.

[Jay Kreps, CEO & Co-Founder at Confluent]

Yeah. Yeah. You know, it's it's certainly the case that we feel that the addition to the product portfolio, both the other Kafka SKUs that kinda fill in gaps in DSP, you know, that over time, that's a tailwind because we can, you know, land and convert more of the existing Kafka. We can turn these into a, you know, bigger use cases, bigger platforms, and bigger spend customer by customer. You know, the the new product things are still smaller, so they move, you know, they move the overall numbers a little bit and grow fast on a percentage basis.

[Jay Kreps, CEO & Co-Founder at Confluent]

As they get to scale, they move the overall numbers a lot. And we've been through a few of those curves before with the ramp of our cloud product and and other things. And so, yeah, that that's kind of the way we look at it. We watch these new things very closely to make sure that they're, you know, on the ramp that we want. And, you know, we would expect to see that kinda have broad impact as they get to scale.

[Shane Xie, IR at Confluent]

Great. Thanks, Mark. And this concludes our earnings call. Thanks again for joining us. Have a nice evening.

[Shane Xie, IR at Confluent]

We'll see you soon.

[Jay Kreps, CEO & Co-Founder at Confluent]

Thanks, everyone.

[Rohan Sivaram, Chief Financial Officer at Confluent]

Thank you, everyone.

Participants

Executives

• Shane Xie, IR
• Jay Kreps, CEO & Co-Founder
• Rohan Sivaram, Chief Financial Officer

Analysts

• Pinjalim Bora, Executive Director, Equity Research at JP Morgan
• Matthew Hedberg, Managing Director, Software Research at RBC Capital Markets
• Michael Turrin, Managing Director, Software Equity Research Analyst at Wells Fargo
• Sanjit Singh, Executive Director at Morgan Stanley
• Brad Zelnick, Managing Director at Deutsche Bank
• Jason Ader, Co-Group Head - Technology, Media & Communications at William Blair
• Mike Cikos, Senior Analyst at Needham & Company
• Gregg Moskowitz, Managing Director, Enterprise software at Mizuho Financial Group, Inc.
• Derrick Wood, Managing Director at TD Cowen
• Raimo Lenschow, Managing Director at Barclays
• Brad Reback, Managing Director at Stifel Financial
• Mark Cash, Associate Analyst - Equity Research at Raymond James