Confluent, Inc. Price & Performance (CFLT)

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 website at investors. Confluent.io. With that, I'll hand the call over to Jay. Thanks, Shane. Good afternoon, everyone, and welcome to our fourth quarter call. I'm happy to report we exceeded all guided metrics Subscription revenue grew 24% to $251,000,000 dollars 38% to 138,000,000 non GAAP operating margin was 5%, our third consecutive positive quarter. These results highlight our customers' need for a complete data streaming platform, our world class innovation engine and our successful transformation to a consumption driven GoToMarket [indiscernible] I'm also thrilled to announce a major expansion of our strategic partnership with Databricks, This collaboration brings together Confluent's complete data streaming platform and Databricks Databricks' Confluent intelligence platform to empower enterprises with real time data for AI driven decision making. The bidirectional integration between Confluence Tableflow with Delta Lake and Databricks Unity Catalog will provide consistent real time data across operational and analytical systems that is discoverable, secure and trustworthy. Built on open standards, these integrations ensure real time interoperability and flexibility across diverse ecosystems. Seamlessly working with the tools and data infrastructure that companies already use.

Operational data from Confluent becomes a first class citizen in Databricks, and the insights created within Databricks can be driven back into any processor in the enterprise via Tableflow and Confluent Confluent. This is an incredibly exciting prospect for companies worldwide. This partnership extends Tableau's reach across the analytics ecosystem, positioning Confluent as the leading vendor for delivering data across the enterprise. This is crucial for scaling AI innovation, by giving application developers, data engineers data analysts and data scientists a single real time source of truth to power advanced analytics and next gen AI driven applications. Additionally, our partnership with Databricks includes comprehensive go to market efforts encompassing field and partner enablement, solutions architectures, co marketing and co selling initiatives. Together, we will enable businesses to harness the power of real time data to build sophisticated AI driven applications Tableflow continues to be one of the most exciting and powerful additions to our data streaming platform. Tableflow exposes Confluent data streams as continuously updating tables in CloudApp storage using open standards like Apache Iceberg and now Delta Lake. This allows Confluent to act as the bridge between operational systems that run the business and analytical platforms like Athena, BigQuery, Databricks and Snowflake that Historically, operational and analytical systems operated in separate silos managed by different teams and composed of different technologies and workflows.

To compensate teams built point to point batch oriented pipelines, to move operational data to the analytical estate, resulting in insights based on outdated and incomplete data. In the era of real time data and AI, stale data simply isn't enough for modern businesses. Data streaming has emerged as a major data platform putting Confluent in a unique position to replace the brittle connections between operations and analytics with something that is much more robust and much more scalable. In fact, our mission and business model is built on creating continuous, trustworthy and discoverable streams of data that can be consumed anywhere in the organization. Tableflow further realizes our mission, making real time Confluent and secure data available as structured tables in object storage an open table format. With Tableflow, data is defined and stored once, accessible across multiple processors, breaking down silos and enabling faster, more accurate Insights. Tableflow was met with excitement across our customer base and is already delivering real benefits to our early customers. Take a U. S. Digital native customer simplifies bookings and operations for ground transportation companies across three continents as an example. Their customers require real time data for a seamless online booking experience with accurate pricing and precise arrival and drop off times.

Previously, they did this by loading data into Snowflake with batch jobs for analytics. However, this caused delays and increased data processing costs. So the digital native customer implemented Tableflow as part of our early access program. To bridge their operational data with their analytic systems using Apache Iceberg.

With Tableflow, Confluent Cloud automatically performs the required data preprocessing, and ingest it into Snowflake as high quality data. The customer can now derive business insights directly from the data faster and at a much lower cost, significantly speeding up analysis and decision making for its transportation customers. Tableflow is also a great example of what we discussed last quarter. Our third wave of growth will come from being a complete data streaming platform. Over the last year, we continued to see strong DSP momentum in our cloud. Connect, Process and Govern accounted for approximately 13% of our cloud business, with consumption growing substantially faster than overall cloud. No other vendor is as intensely focused as us on building and delivering a complete data streaming platform that connects streams, processes and governs data continuously in motion. This puts Confluent in a highly advantageous position because over time, as more parts of our platform are used, a virtuous cycle of adoption drives stickiness and more growth. Above all else, we believe a complete data streaming platform solves our customers' hardest problem. [indiscernible] Let me walk through a few customer examples. Zazzle is a global online market marketplace and platform for creating and customizing unique designs.

The company is built on a foundation of technological innovation that connects customers, creators, and makers. Powering the creation of almost anything. As a leading global marketplace, Zazzle needs to efficiently process massive amounts of click stream data to deliver personalized experiences across its unparalleled range of products and designs. With hundreds of thousands of independent creators making a living through the Zazzle platform, customers in every country worldwide maintaining platform performance while eliminating redundant data [indiscernible] So Zazzle implemented Confluence fully managed Flink offering to transform their largest data pipeline. By shifting stream processing earlier in the pipeline before writing to Google Big Query, SaaS will reduce storage and computation costs while delivering more relevant product directly impacting revenue but this is just the start. With this foundation in place, Zazel plans to expand their Flink usage to additional data streams to further enhance real time personalization capabilities. A leading European grocery delivery service is also built its data architecture on Confluence data streaming platform and leverages our Apache Flink offering to optimize real time order management. This digital first company manages the entire grocery delivery process [indiscernible] To meet their ambitious promise of delivery within twenty minutes, they require a robust real time stream processing solution to monitor and manage orders end to end from warehouse to driver to customer.

Previously, their reliance on REST API calls and event driven architectures using open source Kafka led to inefficiencies, delays, and fragmented data sources. By transitioning to Confluent Cloud with Apache Flink, they now seamlessly process key data streams, including grocery orders and warehouse locations, into a unified order topic that is easy to manage and consume. Further enables them to aggregate orders, assign them to delivery drivers, and track driver speed and location to provide accurate delivery time estimates for customers. This streamlined solution has significantly enhanced their order management minimized downtime, and a faster, more seamless experience for both drivers and customers. A top three Fortune Global 100 telecom customer shows the value of a complete DSP as consumers make calls, send texts, and access the Internet, a constant flow of data from mobile devices is set cell towers across the network. This data then needs to be shared with partners and subsidiaries in real time so they can optimize network coverage and analyze customer usage patterns. The telcos previous legacy streaming service was unable to deliver the scale and speed required for the mission critical cell tower workloads. They turn to Confluent's Confluent DSP for real time visibility and improved scalability across With Confluence data streaming platform, the telecom provider streams mobile data from 70,000 U. S. Cell towers with connectors feeding data into lakes and warehouses.

Stream processing provides real time insights into network reliability and performance of mobile devices and wireless plans, which is then shared with partners and subsidiaries. This allows the telecom provider to unlock new revenue streams by making faster, smarter [indiscernible] from where to invest in five gs capabilities to where to lay down fiber optic cables. Citizens Bank, one of America's oldest and largest financial institutes [indiscernible] strengthen its digital banking offerings. Today's banking customers expect real time experiences like immediate fraud alerts and instant access to deposited funds. With an expanding data footprint, citizens struggled to self managing open source Kafka, which required So they turned to Confluent complete data streaming platform. Using Confluent Cloud, Citizens Bank connects data from sources like consumer check [indiscernible] credit cards and FICO fraud scores generating real time actionable insights. Stream governance ensures the bank's data is high quality, and trustworthy by using schemas to reduce data inconsistencies and ensure compliance.

With Confluent, Citizens Bank has reduced IT costs by 30% and saved $1,200,000 annually by reducing fraud false positives by 15%. Additionally, the bank has seen a 20% increase in customer engagement. A 40% faster loan processing time and a 10 increase in net interactions. And finally, I'd like to close with an update on innovation and momentum in our Kafka business, including wins and early WarpStream success. At Confluent, our strategy starts with capturing [indiscernible] And 50,000 organizations worldwide. Doing this requires having the right offering to meet the TCO and reliability requirements have an incredibly wide variety of use cases. In 2024, we invested in offerings to better capture the entirety of [indiscernible] One area we targeted was the high volume, cost sensitive workloads common in observability, analytics, security and IoT. Now generally available, freight clusters are a great offering for this segment. They're designed to attract cost conscious customers with high throughput, latency tolerant workloads. We paired this with WarpStream, which serves a similar customer base but allows running directly in the customer's account. Adding a low friction midpoint between self managed and SaaS. We've seen great traction with both of these offerings in helping us penetrate new accounts.

Particularly in the large scale digital native segment with offerings that address use case cases that demand zero access security and have tolerance for relaxed latency. This is playing out already. In fact, every WarpStream deal closed since acquisition was from our digital native cohort, including companies like Elastic, the search AI company used by over half the 500 and Cursor, the AI code editor that's become one of the hottest names in AI. And the vast majority are net new customers to Confluent. We're excited for the future of WarpStream and continue to invest in its innovation in including a whole host of new features released in January. One expansion with WarpStream this quarter was with a digital native customer that helps developers access real time data. Their large scale and high storage requirements made this a significant cost driver. Previously, they used Red Panda, but as their usage increased, so did their bill. The unsustainable costs combined with performance issues with Red Panda led to their decision to adopt WarpStream. Switching from Red Panda to WarpStream delivered immediate benefits for the customer, including nearly 10x cost savings and the ability to handle much higher data volumes on their platform.

This has unlocked entirely new use cases for the customer that weren't possible before. In closing, we're pleased with our strong performance this year. The progress we made and the innovation we delivered to customers in 2024 set us up to capture more of this significant market opportunity ahead. With that, I'll turn it over to Rahan.

Thanks, Jay. Good afternoon, everyone, and thank you for joining our earnings call. We had a strong finish to fiscal year 2024, delivering durable growth significant operating leverage and positive free cash flow. In fiscal year 2024, subscription revenue grew 26% to $922,100,000 Non GAAP operating margin improved 10 percentage points to 2.9% free cash flow margin improved 17 percentage points to 1% making fiscal year 2024 our first non GAAP profitable year in the company's history. These results well exceeded our initial expectations across all guided metrics entering the year, reflecting the power of our data streaming platform and our teams excellent execution against our large market opportunity. Turning to the Q4 results, subscription revenue grew 24% to $250,600,000 exceeding the high end of our guidance and representing 96% of total revenue. Regulated industries, remain a key growth driver for Confluent Platform. Confluent Cloud revenue grew 38% to $137,900,000 and accounted for 55% of subscription revenue, compared to 49% a year ago. During the quarter, we saw stable consumption and continued use case expansion across our large customer base, driving robust growth in our core streaming business. Additionally, we saw continued adoption of new components of our data streaming platform.

DSP cloud consumption, which includes Connect, Process and Govern, grew substantially faster than overall cloud and accounted for a approximately 13% of our cloud business. Turning to geographical mix of total revenue. Revenue from The U. S. Grew 20% to $153,700,000 Revenue growth from outside The U. S. Accelerated to 26% and was $107,500,000 Earlier today, we announced a multiyear strategic partnership with Jio Platforms Limited, an Indian multinational technology company and a subsidiary of Reliance Industries Limited. By making Confluent Cloud available on JioCloud services, and Confluent Platform as a managed service, The partnership is expected to accelerate India's development of Gen AI and next gen applications delivering the power of real time data to more businesses in the country. Moving on to rest of the income statement, I'll be referring to non GAAP results unless stated otherwise. While continuing to drive top line growth at scale, we once again demonstrated significant operating leverage in our model. In Q4, subscription gross margin increased 90 basis points to 82%, primarily driven by the economies of scale in Confluent Cloud. Operating margin was 5.2%, exceeding our guidance of approximately 2% and was primarily driven by revenue and gross margin outperformance. Free cash flow margin expanded approximately eight percentage points to reach a record high of 11.1%.

Net income per share was $0.09 using 362,100,000.0 diluted weighted average shares outstanding. Fully diluted share count under the treasury stock method approximately $370,100,000 Net income per share was $0.09 using 362,100,000.0 diluted weighted average shares outstanding. Fully diluted share count under the treasury stock method approximately $370,100,000 And our balance sheet remains strong, ending the fourth quarter with $1,910,000,000 in cash, cash equivalents and mark [indiscernible] Turning now to other business metrics. Q4 win rate for new business once again saw a notable increase both year over year and sequentially. Our win rate against the CSP offerings and smaller start ups remained well above 90%. This underscores the strength of our complete data streaming platform, providing outstanding performance with unparalleled reliability and flexibility and favorable TCO and ROI for our customers. This coupled with our consumption transformation has driven a year of high velocity land and expand. We ended fiscal year twenty twenty four with approximately 5,800 customers representing an increase of eight forty customers nearly double the total increase from the previous year. New customers in the quarter include a top five video gaming company, one of the world's largest sports media outlets, a Fortune 100 pharmaceuticals company a global cruise operator a leading European airliner and many more.

We also drove robust expansion in our large customer base, We grew our 100 ks plus ARR customer count to thirteen eighty one an increase of 12% from a year ago. This represents approximately 24% of our total customers, a key success indicator of our expansion strategy after landing a customer. These 100 ks plus ARR customers represented approximately 90% of our revenue. Our 1,000,000 plus ARR customers grew even faster. Accelerating to 23% and ending the quarter at 194 customers. New 1,000,000 plus ARR customers include customers from a wide variety of industries, spanning financial services, healthcare, manufacturing and logistics, retail, technology and more. Q4 NRR was 117%, while GRR remained above 90%. Our stabilized NRR in recent quarters coupled with continued strength in GRR, provides a solid foundation for delivering on our target this year. Before turning to our guidance, I would like to discuss Confluence' positioning for 2025 beyond. 2024 was in many ways a consequential year. First, we have optimized our pricing and packaging with the introduction of enterprise [indiscernible] clusters, freight clusters and the acquisition of WarpStream, This has significantly increased our serviceable addressable market as we are positioned to deliver best in class TCO for a broad range of use cases across self managed, fully managed and BYOC deployment models.

Second, we extended our technology lead by expanding our DSP capabilities with more than 200 features and capabilities across Stream, Connect, Process and Govern. With the upcoming Tableflow GA release, we will expand our growth vector by unifying the operational and analytical estates in data management. Finally, we have successfully transitioned to the next generation Go to market model focusing our team on consumption based selling. By increasing consumption of our data streaming platform, we help customers realize substantial ROI for powering their mission critical and real time AI workloads. As we drive ROI based expansions throughout our customers' data streaming journey, we expect our growth and profitability profile to strengthen over time. Following a year of substantial transformation, we have established a major data platform for the enterprise. Unlocking the power of data streaming for thousands of customers and operating at a $1,000,000,000 plus revenue run rate. Given the strong foundation we set last year, we expect to begin reaping the benefits in 2025. Our objective is to continue soaking up the world's Kafka and to establish 2025 as the year of DSP. We will support these initiatives with a resource allocation strategy focusing on efficient growth and prioritizing our investment in expanding our DSP capabilities, hiring and enabling our team to sell DSP, and forming strategic partnerships and alliances.

We look forward to driving durable and efficient growth in 2025 as we execute against our large and growing market opportunity. Now let's turn to our guidance We are providing Q1 and fiscal year twenty twenty five subscription revenue outlook ahead of expectations. In addition to guiding fiscal year twenty twenty five non GAAP operating margin within our midterm target set at the time of our IPO. For the first fiscal quarter of twenty twenty five, we expect subscription revenue to be in the range of $253,000,000 to $254,000,000 representing growth of approximately 22% to 23%. Non GAAP operating margin to be approximately 3% and non GAAP net income per diluted share to be in the range of $0.06 to 0.07 For fiscal year twenty twenty five, we expect subscription revenue to be in the range of $1,117,000,000 to 1,121,000,000.000 representing growth of approximately 21% to 22%. Non GAAP operating margin to be approximately 6% and non GAAP net income per diluted share to be approximately 0.35 I'd also like to provide a few modeling points. For subscription revenue seasonality, at the midpoint of our guidance, we expect the first half of fiscal year twenty twenty five will be approximately 46.5% in line with the average of the first half seasonality in the last two years.

For cloud revenue, are comfortable with the current consensus dollar estimate for fiscal year twenty twenty five, and we expect to see approximately one point of increase in cloud subscription revenue mix each quarter with the Q4 'twenty five exit of approximately 59% to 60%. For free cash flow margin, we expect a one time negative impact of approximately 15 points Cash compensation payments for most of our non go to market employees. Excluding this one time impact, we expect adjusted free cash flow margin for fiscal year twenty twenty five to be approximately six In closing, our strong finish to 2024 is a testament to our large TAM the market leadership of our technology platform, and our world class team. Powered by the secular tailwinds of cloud, data and AI, we're incredibly excited to take advantage of the market opportunity ahead. Before turning to Q and A, we will host Investor Day twenty twenty five on March 6 in San Francisco. If you are interested in attending in person, please contact the IR team at investorsconfluent. Io Now, Jay and I will take your questions.

Thanks, Rohan. To join the Q and A, please click on the raise hand [indiscernible] And today, our first question will come from Met Pepper with RBC followed by Wells Fargo. Matt, please go ahead.

All right. Thanks a lot, Shane. Congrats team on the results, really strong end to the year. I guess Jay, I want to start with you. There was news a couple of weeks ago about Snowflake potentially looking at acquiring Red Panda and today you announced really an excited expanded relationship with Databricks. I guess I'm wondering, could you talk more at a high level of how customers think about using Confluent for streaming and processing outside of analytic engines? And then maybe where that processing makes sense within the data lake or data warehousing layer.

Yeah. Yeah, it's a great question. So there's there's a really two kind of key points that are driving this. One, is the rise of these AI applications, which increasingly it's not just like a report that has yesterday's data or a warehouse where people can do ad hoc analysis periodically. This is actually operating as part of the business. And so it needs data that's kind of up to speed with what's happening in the business.

And that's driving the need for real time data in the analytics world.

The second is the rise of these open data formats. So, iceberg or Delta, these are new way of laying out all the data in the analytics realm in kind of open objects storage. And it may not be obvious, but this, Tableflow offering that we talked about is kind of we think the best way to get this. So it's a real time feed of all the data that's available in the streaming world that's in projected out as iceberg or delta tables. And so when we talk about the partnership with Databricks, it's both integration into Delta, their format and Unity, their catalog. Which opens up anything in Confluent for, use in the Databricks ecosystem, including those types of applications. And then, going along with that is go to market activities to take that out to customers. And back to the question of, hey, where is this useful to customers? There's a very clear ecosystem of analytics, use cases, applications, There's a very clear ecosystem of operational kind of run the business applications And then there's a whole murky middle of all the AI stuff and things that are happening all the way in between. Our goal is to unify that around streaming data.

And make that available through all these different form factors to the different use cases that we need. So yes, we see it as incredibly complementary and we're excited to be working with Databricks folks.

Got it. That's great, great answer. And then maybe just one quick follow-up. Ron mentioned that 2025 is the year of DSP, which is I think great to see especially given it increasing in the mix of cloud revenue. How do you feel like what gives you the confidence that those trends continue? Are you starting to see some anecdotal evidence of just like increased pipeline? What are some of the tea leaves that you're reading that makes you suggest that to be the case?

Yes. Yes, it's always a mixture of qualitative and quantitative. So qualitative is, look, some of these things, the connectors, Flink, they have massive open source adoption. So we just know that it's out there. We know that customers are excited about this. They're talking about it. One, it is part of a managed [indiscernible] And that comes out just in more or less every conversation we would have with our customers. There's really been an evolution of what's expected the streaming world from just kind of the pure stream of data to a whole set of real time data. Capabilities. And we think we're kind of at the forefront of delivering that. The second bit is a little more quantitative.

Which is, yeah, we just we look at the actual ramp and growth of consumption of these areas and the kind of forward looking pipeline we think we have for customers a lot of the changes we've made in terms of our consumption transformation make us much better at tracking these workloads driving kind of product area by product area, the growth of these specific items.

Thanks a lot, Shane, and congrats. All right. Thanks, Matt. We'll take our next question from Michael Turrin with Wells Fargo.

By Deutsche.

Michael, Hey.

There's a lot of useful commentary throughout prepared remarks. So appreciate that. Jay, I wanted to just spend some time with you just speaking through what you're seeing in terms of AI related use cases for, streaming and or DSP technology? Is there commonality in terms of customers' use cases you're seeing? And maybe how you'd expect that progress over the coming year?

Yeah, I'm happy to do that. So if we think about the first wave of use cases, there's a lot of chatbots and usage pattern there was, hey, get the data. For the AI. And so to kind of boil it down, it was basically kind of real time ETL. Like capture the data, be able to transform it into the right format, be able to store it in a way that's accessible and usable for a rag application, which is combining the stored data with LLM or language And we've seen a number of those kind of progress through to things that are either internally facing in customers or usage pattern was, you know, get the data, The second usage pattern we're seeing is this ability to apply language models kind of on the stream of data directly. Right, carry out some actual use cases, something [indiscernible] a claim filed. There was a set of digital work that would happen, but there was also a set of manual work that would happen to actually prep, analyze, look at different documents. Being able to orchestrate that and take it further in the digital realm is a huge cost savings. It's a big quality improvement.

And I think that's very much goal that people have in the adoption of AI is not just more chatbots, but actually being able to plug this into parts of the business, have it take over some of the work that would otherwise be done by humans or augment that work in some way. And so I think that's the second pattern that we're starting to see rise up in Great. And then just as a follow-up if I may, Rohan, you mentioned some differences between twenty four and twenty five. You're calling for pretty consistent growth rates. If we look at the Q1 subscription revenue guide, and the rest of the year. Maybe just frame for us what you're assuming with that initial guide in terms of some of the changes that you're laying out and just more context there, I think would be helpful.

Thanks for your question, Michael. We'll absolutely do. First of all, we're very pleased with our guide for Q1 and fiscal year 25% [indiscernible] above the consensus estimates that were out there. And when you really look at the underlying drivers, I'll call out maybe three of them, right, First is, for the cloud business, we called out that we are comfortable with the estimates that are out there.

Which is roughly greater than 30% growth rate give or take, at a very high scale. So and that's kind of underpinned by just the stability in the NRR that we spoke about in the second half of the year.

The second aspect I'll call out is, some of the drivers. The first driver is DSP that we the DSP products are in their earliest stages of their growth curve.

So, obviously, we have a lot of runway out there. So that's our opportunity The second piece around the growth areas are of the newer products that we spoke about just created Freight Cluster, We're going to be GA ing Tableflow Workstream momentum. So that's a category number two.

And category number three is the partnerships that we spoke about, Jio and Databricks.

And these partnerships are not only in the technology side, but also on the go to market side. So, the revenue contribution from the partnerships is probably not as material. But these are all kind of drivers of growth as we look ahead into next year. What I'll tell you is when I take a step back, I think it's helpful to have multiple growth drivers and more importantly, multiple parts get to your objective. So that's how we categorize it.

Great. Thanks very much. Thanks Mike. We'll take our next question from Brett Zelnick with Deutsche Bank followed by Morgan Stanley.

Thanks very much. Great to see everybody and congrats Jay, maybe just for starters, this past year, you made transition in your go to market changed up the incentives. As we look to 2025, what's the big message coming out of sales kickoff?

What adjustments, if any, are you making to the model that we should keep in mind that will perhaps change incentives and behavior? Thanks.

Yeah. Yeah, it's a great question. So obviously, last year was a bigger transformation. We were changing lot of the fundamental incentives, but that trickles down to even how we would track workloads with customers, our definition of pipeline, number of organizational changes to support it, Yes, I think one of the really positive things heading into this year is we feel like broadly those changes have been effective. It was a big adjustment but heading into this year, it's a much more minor set of tune ups which are kind of the equivalent of what you would do heading into any new year, where you kind of tune this aspect or that aspect of the comp plan. One of the big advantages in what we've done is we can now track and drive the specific workloads and the amount of HDS DSP component that's part of that is not just some generic commit to some raw number of dollars, it really is set of use cases which are going to drive consumption of these individual new So the we actually just had our sales kickoff this last week. A lot of fun, really positive energy, I think, from the team.

I in fact, pretty excited and with a little bit of a sore throat from talking so much, But yeah, I think it resonated really well and people are excited to go take those out to all their Awesome. And maybe just a quick follow-up. Rohan, you talked about packaging changes that you made that expand the serviceable addressable market And we just that you can expand on that because that sounded like a really important point. I want to make sure that we understand it. Thank you.

That's right. Brad, the best way to think about it is when I look at, say, eighteen months back, our when you look at our pricing and packaging options that were out there, it was primarily our dedicated clusters and the standard and basic cluster. [indiscernible] In the last eighteen months, we've added Enterprise Q, which is essentially multi tenant, and it provides private networking, provides the right amount of security, Think like, you can, instead of flying private, you can fly commercial right now. With enterprise And then we also came up with our freight clusters, which is essentially for, high throughput, latency and sensitive workloads, you can do it at a very high TCU ROI. And then we came we acquired Workstream, which is pretty similar to grid clusters, but doing it in your own, infrastructure. When you kind of look at all of this, it is all around Confluent providing our customers with, the right amount of ROI and TCO for all your workloads. Not selective workloads. So that's that's the commentary around us being able to expand our serviceable addressable market. And essentially take a step forward to, you know, our mission around soaking up the world's stuff.

It does. Thank you so much. Thank you. We'll take our next question from Sanjit Singh with Morgan Stanley. Followed by Barclays. Thank you for taking the questions and congrats on Q4.

Jay, you mentioned that 2024 was a pretty transformational year across to market changes, broadening out the product portfolio, We made some changes on pricing over the last twelve to fifteen months as well. I guess the last piece of the question is the piece of the puzzle is kind of the broader spending environment. And so how would you sort of characterize Q4 across like sort of executing its pipeline, consumption trends, going into the holidays and then consumption trends coming out of into January to early February.

Yeah. Yeah. So I would say overall, certainly, we've seen kind of stability in the market in our different customer segments. We feel like that's continued into what we've seen so far in Q1, as reflected in the results, right? We felt very strong results, not some step change from Q3 or what came before, but overall strength in demand, a little bit more certain [indiscernible] to continue through to this year.

Understood. And then on the sort of go to market side, I imagine partnerships will be a little bit more in focus. Last year was more sort of consequential change on the go to market side. But what if any changes are sort of left Yes. Certainly, in terms of consumption related changes, it's more of a tuning here and there, how you incentivize the DSP multiplier and other smaller aspects of the comp plans. Less revolutionary. We are putting more effort into the support for selling use cases that really consume this whole DSP being able to land that directly being able to support some of these use cases to integrate in the analytics realm, a little bit of what we talked about with partnership with Databricks, those are definitely some areas of particular focus for us.

Appreciate the thought, sir. Thank you. Thanks. We'll take our next question from Ryan Melenchow with Barclays. Followed by JV Morgan.

Hey, thank you. The last few quarters we talked or like this time last year we talked a lot more about Flink.

And this time, because you added so many more products, it's kind of like a little bit out of the limelight. Can you talk a little bit what you're seeing there and what you can maybe do kind of to drive momentum there in the coming year, if you have any plans there? And then one follow-up.

Yes. Yes. We've been pleased with the progress. So you know, it's a fairly large effort to get a new cloud data processing layer up and off lot of maturity in the product offering, including opening up across a lot of the private networking types in the clouds, which then allows us to start to begin to service more production workloads. We've seen good broad based adoption in the customer base. It takes time for them to kind of rebuild applications that they have but overall good strength in the build there and we're kind of pleased with the progress and You know, basically feel equally bullish as we would have Q1 of last year.

And then on the Databricks relationship, like obviously, there's a big discussion. Do you need kind of stream you guys in that journey or not, can Databricks do it themselves? This is obviously a very, very strong confirmation about your role in that ecosystem. [indiscernible] What are you seeing there in terms of like how you would fit in Abu Vandesa? How exclusive Databricks what's the opportunity to broaden this out? Congrats on me as well.

Yes. Yes. Look, our role is as this broker of streaming data across these different platforms within the analytics realm.

That's increasingly very relevant as they look at trying to be able to participate in some of the AI workloads that are more real time, that are more about running the business, we think we're in a very good position in that ecosystem and with some of the product functionality we're bringing to market. And we're really pleased to be working with them. We certainly view them as a leader in that space. And, I think it's going to be a very productive partnership.

Okay, perfect. Thank you. Thanks, Raimo. We'll take our next question from Pindulan Borr with JPMorgan. Followed by Piper Sandler.

Great. Thank you guys. Congrats on the quarter.

Jay, I just want to ask you one thing. In our conversations with partners and customers, kind of notion has emerged that the agentic AI architect it's not only real time data flows, but real time data processing is kind of becoming important for agents to take decisions. Is that broadly true? Are you seeing kind of, flink attachments, attach rates higher for argentic? Workflows and then one for Rohan.

Anyway, don't understand what is assumed within the guidance for 2025 around DSP mix and Flink mix?

Yes, it's a really insightful question. This is actually actually the topic of my keynote for the last current conference that we held in The U. S. For our customer base, I talked about some of these use cases. Exactly as you say, I talked in the previous question about these agents that are actually reacting to what's happening in the business. Right? So you could see the streams of data is being a little bit like the sensory system that's saying, hey, what's happening? Being able to take bits of work as they come in, act on them, produce whatever output to rest of the business That is fundamentally a stream processing problem, however you tackle it.

And so yes, we feel like the technology we have in that space is particularly relevant The advantage of using this kind of streaming technology is very much that you can kind of take the input data, run it against it, look at the output, run it again, tweak your model, try a different model, add new context information, bring together other information you have, So, yeah, I think it's very applicable. And if anything, one of the interesting things that's happening in the AI world with relationship to the older machine learning, is in some sense the action is kind of moving into real time. Prior to Caplu and I worked at LinkedIn, one of the teams that we had was a big data science team that would do model building. Right? And so the role for streaming relative to that team was feed a bunch of stuff into some lake and they would go offline and kind of build some models that would eventually be kind of shipped out But each model was very specific to the problem being solved.

If you think about what's happening in the new world, companies aren't building as many bespoke models. You're mostly getting your model pre built off of a very large general purpose dataset. Mostly what you're doing is applying your specific context data with the model at inference time, like at runtime. That's kind of the RAG architecture. If you think about, well, what's the resulting data infrastructure from that, it's going from this kind of offline processing to something that's very much online that's in sync with the business and that's obviously advantageous, I think, for folks in the streaming world. [indiscernible] Jalen, to answer your second part of the question, when I think about DSP consumption, it grew substantially faster than the overall cloud business in Q4 And as I mentioned, it accounted for roughly 13% of our cloud business. Which we're obviously very pleased with. And as I think ahead, all the key components of the DSP are in their earlier stages of their growth curve. And we expect them to be material drivers of growth for the next couple of years And specifically for 2025, while I'm not going to get into exact numbers, we expect Thank you.

Hi. Thanks, Pendulam. We'll take our next question from Rob Owens with Piper Sandler.

Thanks, Shane, and good afternoon, everyone. One question, but multiple parts. So you guys can both answer. I guess, I'd like to focus a little bit on your million dollar customers and your success upmarket. What's driving that? Are customers getting to that million dollar bogey quicker, especially as you move to the DSP platform. And for Roe, long term deferred revenue up $20,000,000 sequentially kind of sticks out, especially given the move to consumption. So maybe you can address that. Thank you.

Yes, I'll take the first part of that. Yes, obviously, a large part of what we're trying to do is build the journey from that first use case to a large cross company platform that has a significant portion of the data and application workloads in the company. And that's a big project in each one of these customers. Everything we do is about how can we accelerate it. So when we think about services offerings, partnerships, features, it's all about how we build that journey and make that easier for customers to achieve. In particular, a lot of the DSP functionality is very much that. Right? So the connectors make it really easy instead of having to come in and build a bunch of integration, you can just plug this into the things that you have and have streams of data flowing.

Flink makes it much easier to build real time applications that are fault tolerant and scalable and correct and work with the languages you know like SQL, which is kind of the lingua franca of the data world. And similar with the kind of governance functionality that makes this actually usable across the organization. And we do see that flywheel, right? Indeed, as customers adopt these things, we see greater usage of the core streams of data.

And so we feel very much that as these things spin up, they all kind of feed off of each other and that should very much take customers more quickly to larger scale within the organization. And I think that we're starting to see realization of that, you know, so for CIOs, CTOs, engineering leaders, as they're thinking about an overall data strategy, as they're thinking about what's needed for AI, I do think this is a very important piece that they're thinking about. And starting to contemplate the role that data streaming plays. That kind of broad understanding of our space hasn't always been there. In the early days of the company, it was not. But I do think that that's a key accelerant when you think about getting customers to buy in, to build around something and to take it to large scale quickly. Rob, I'll add a couple of quick points to what Jay just said, then I will go to the deferred revenue piece. On the total customer, large customer ecosystem, I also called out that when you look at our 100 ks plus ARR customers, that cohort now basically contributes approximately 90% of our subscription revenue.

And when I re and then when you look at our million dollar plus customer and you look at the last twelve months, the momentum has been great. So I'll give you a different lens as in I think about consumption, there are probably three drivers of consumption, right, You have an existing use case and there is more data flowing through that. That's that's number one. The second area is our ability to unlock net new use cases. And with AI, that's obviously a lever of growth. And the third, albeit in early days, is us selling DSP into our existing customer base. So the opportunity with our existing customers is still pretty large. Just to add to what she said. Now going back to your second question around deferred revenue, honestly, not a whole lot to read into it. Like I said, when you look at deferred revenue or RPO, that's probably not the only indicator for the organic momentum of the business purely because how we think about cloud, we are consumption first, and we're truly not leading with the largest commit possible. It's all around unlocking the consumption and working with the [indiscernible] [indiscernible] changes in deferred revenue is primarily driven by timing of large Confluent platform multiyear deals, so but not a whole lot to read into it.

All right. Thank you. Thank you. We'll take our next question from Kash Rangan with Goldman Sachs. Followed by Google. Line. Hey, thank you very much, Jay, Rohan and Shane.

Good to see you guys. Jay, I was wondering since we've had the benefit of a full year of the rollout of the new model, and we brought in Flink into the fold how satisfied are you with the tilt towards compensating salespeople through consumption? Because I think the year back or the hope was that we'd come out of this with the ability to grow even faster and allow customers to consume even more freely, more faster And one of the things we should be watching for to ensure that that is happening Maybe the net expansion rates are not there yet. The cloud growth rate could be hitting an inflection point, Maybe there that is still ahead. So how satisfied are you that we've seen or are we begin to see the effect of the fruits of all the actions that were put in the last year. Also second, finally, if you have the time, if AI were to be a tailwind for the company, where would it show up in the way that people like us can can read in the financial statements? Thank you so much once again. [indiscernible] Yes. So to the first question, yes, there's really two things we're trying to achieve.

One is really match the way our customers were buying and thinking about the type of product that we offer. Make it easier for them to land, make it easier for them to expand and add workloads. The second was to be in a position to really drive adoption of DSP. Around our cloud. And I think we exit this last year, entered this year, in a position to do both of those? And that that was very much the objective. I think that's a much better position to be in relative to what we're doing with customers, it means we're tracking the kind of individual workloads that they're bringing out to production. And so yes, I do view that as a growth driver for us over time. And as a necessary step to be in sync with the peer companies and in sync with the new offerings we want to bring to market. To the latter question, on AI use cases, yes, I think it's really about the broader set of these coming into production usage that's where we're going to see this happen. I think you would see it both the kind of customer references. We've shared some of the ones that we've seen so far.

As well as in the kind of overall growth numbers for the company. But there's obviously not a broken out category. I don't think it's necessarily disproportionate. Cloud or CP. We see use cases across both So, yeah, I don't think you would see it in a single customer stat that that we produce. All right. Thanks, Kash.

We'll take our next question from Howard Ma with [indiscernible] Great.

Thanks. It's great to see everyone and congrats on a strong finish of the year.

Jay, in your prepared remarks, you mentioned a couple of customer examples where I think I believe they're replacing traditional data integration vendors with Confluence I believe to date though, Confluence Confluent of Confluence new business has come from replacing open source Kafka with, for real time use cases, But it seems like now you're going maybe more direct rip and replace of commercial data integration vendors for batch processing. And I'm not sure if this is always the case and what the historical mix has been, but can you confirm if if that is true that you're winning more of these larger commercial batch workloads if that is the case, is that changing your go to market at all? The types of prospects you're targeting? And how you're targeting them?

Yeah. It's a really good question. So I would say we've it's always been the case that we've been replacing call it, other legacy integration technologies. That's not solely new.

However, often our first land was a conversion of open source Kafka. Now, of course, the open source Kafka may have replaced some legacy data integration. I think it may have been net new project. But one of the things we've always found is whatever that initial land is, as customers get to scale, they start to think about the portfolio of technology and what is it that they want to bet on going forward. And they start to have a plan of what they're divesting. And what they're investing in. And I do think it's very much the case in our large customers that they see data streaming as the future of how data flows are [indiscernible] And I think that that does displace a number of the existing vendors in that space, and I think they are looking at replacing that. Now can we land directly against this use case? I think the answer is increasingly often yes, right? One of the things that's happened as there's more awareness of the data streaming space overall And also as our product is more complete, having an out of the box set of connectors that plug in, having transformation capabilities, it is more of a apples to apples replacement of some of these things with something that's net better, that's more scalable, that's real time, that's an open application platform, that has a lot of benefits, but actually can just kind of displace a lot of what's there.

And so yes, I do think we're seeing more of that.

Great. Thanks so much.

Yeah, of course.

All right.

We'll take our next question from Gray Moskovitz with Mizuho. Followed by D. A. Davidson.

Thanks and congrats on the results and the partnership announcements. Jay, it sounds like Workstream got off to a very good start.

And so you now have three types of deployment mechanisms. Each of them value [indiscernible] could this potentially lead to a little more customer deliberation, a slight lengthening of sales cycles as part of that decision making process? Is that really not a concern from your perspective?

Yeah. It's not a huge concern. Obviously, anytime you're adding more packages or options, you want to be cognizant to that. But we thought that actually when you look at customer workloads, there's a fair amount of diversity. And so the first order thing to do is make sure that you have a really excellent TCO story, deployment story, set of capabilities for each of those. You can kind of walk into a customer and say, hey, tell me what you're doing We've got the right solution for all of these things kind of out of the box.

And one of the things I mentioned we had our sales kickoff One of the things that I talked with our team about and that a lot of our product leaders talked about was the fact that entering this year, we really felt like we're in this position where across every use case, we were dramatically superior to whatever the customer is doing in the streaming space. And then it could be kind of a no brainer both on functionality, but also on price from very large scale to the kind of early starter stuff to the very high SLA, but maybe not as big, really across the board we had very strong story. And that was a deliberate path over the course of last year. Now, it does mean got more cluster types, but I think in any of these areas that succeed, like you look at the AWS product offerings, Sure, they start with three EC2 instances. As this gets more used, they do kind of fill out the main [indiscernible] may have And I think that's actually kind of a very important part of maturity in this kind of cloud infrastructure. So net net, we feel very good about the kind of full portfolio.

Terrific. Thank you. Thanks, Greg. We'll take our next question from Rudy Kapsinger with D. A. Davidson. Followed by Canaccord.

Hey, thanks guys. I may talk about going to year two and just go to market change and really just how that's gone pretty smoothly and just kind of some some tune ups at this point. I am curious though, Rohan, like, within the guide, are you assuming higher sales productivity levels this year, just given going into year two or just what's what's implied from that standpoint?

Yes, that's a great question. Again, I'll start with 2024, Road '80. When I look at 2024 and I look at just a broad efficiency on the go to market side of the world, In fact, we improved our sales and marketing as a percentage of revenue 2024 by roughly six percentage points. That essentially tells you that as we've kind of gone through the year, we've gotten more and more efficient. So that's one aspect of it. And given our resource allocation philosophy, we're not going to lose sight of that. That's going to be a continued focus for us us getting more and more efficient as we deliver try to deliver and deliver durable growth. When I think about where we are from a capacity stand, [indiscernible] We feel good with the capacity we have. We've had a good hiring year towards the [indiscernible] So we have capacity on board to deliver on the plans that we have for 2025. Thanks, Rudy. We'll take our final question today from Kinsley Cray with Canaccord.

Thanks. So DataGravity really important when you look at all the strategic moves and acquisitions made by these large data platforms all of them tied back into DataGravity. Data mobility has also never been higher Table flow fits perfectly into that narrative. Just taking a step back, does all of this give you more confidence that stream processing will be a much bigger market over time? And then what inning do you think we're in in that market Yes.

So if you look at the kind of broad trends that we're seeing the rise of AI and the push of a lot of the analytics world more into real time that continued investment in a set of different data platforms [indiscernible] The rise of the public cloud, but the endurance of some of the on premise stuff net net, the connectivity between all of this is really important. And more of the workloads are moving into this kind of operational continuous processing world. So yes, it's a phenomenal setup for streaming. What inning are we in in it? We're in a very early inning.

So if you add up the dollar spent on batch processing, is large. Pile dollars, right? If you say, hey, what percentage of those dollars have moved to streaming? Well, good percent. We're excited to talk about it every quarter.

But there's a lot more dollars to go.

And I think that's an exciting thing for us. And I think as we talked about before, what this area encompasses is both a set of data integration, kind of bespoke half worked out data integration verticals, but also a set of application workloads that we're maybe running offline at the end of the day and are moving into the think both of those are very exciting opportunities. Both of those are being done by our customers And the scope of those is expanding both with the DSP capabilities we're bringing as well as the continued expansion in these customers as this becomes a really critical data platform for that.

Great. And a quick follow-up. So great to see diverse streaming adoption video gaming, sports media, pharma, airlines, are you seeing any particular verticals strength with respect to Newark AI related projects? Or is that similarly diverse?

Yes. Yes, we've done really well in the kind of AI company, dedicated AI companies. And then of course, inside of an existing industry kind of AI projects. The AI companies are obviously wonderful customers to have. We've talked about OpenAI in the past. We talked about Kircher in the call today, which is really cool. Tool that helps software engineers write code faster So we're very excited about what's happening there. Those are very fast growing set of customers that we're pleased to be working with. With. All right. So this concludes our earnings of you at our March Investor Day. A nice evening, and take care.

Thanks, everyone. Thank you.