UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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The (Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of July 24, 2024, there were
TABLE OF CONTENTS
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
1
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Where You Can Find More Information
Investors and others should note that we may announce material business and financial information to our investors using our Investor Relations website (investors.confluent.io), our filings with the Securities and Exchange Commission (“SEC”), webcasts, press releases, public conference calls, and blogs published on our website. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.
We also use our X (Twitter), LinkedIn, and Facebook accounts as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts, in addition to following our SEC filings, webcasts, press releases, public conference calls, and blogs published on our website. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. These channels may be updated from time to time on our Investor Relations website.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Confluent, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
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June 30, 2024 |
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December 31, 2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Marketable securities |
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Accounts receivable, net |
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Deferred contract acquisition costs |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill and intangible assets, net |
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Deferred contract acquisition costs, non-current |
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Other assets, non-current |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued expenses and other liabilities |
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Operating lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Operating lease liabilities, non-current |
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Deferred revenue, non-current |
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Convertible senior notes, net |
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Other liabilities, non-current |
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Total liabilities |
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3
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June 30, 2024 |
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December 31, 2023 |
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Stockholders’ equity: |
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Preferred stock, par value of $ |
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Class A common stock, par value of $ |
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Class B common stock, par value of $ |
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Additional paid-in capital |
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Accumulated other comprehensive (loss) income |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
4
Confluent, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue: |
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Subscription |
$ |
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$ |
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$ |
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$ |
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Services |
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Total revenue |
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Cost of revenue: |
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Subscription |
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Services |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Restructuring and other related charges |
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Total operating expenses |
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Operating loss |
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( |
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( |
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( |
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( |
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Other income, net |
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Loss before income taxes |
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( |
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( |
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( |
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( |
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Provision for income taxes |
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Net loss |
$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted-average shares used to compute net loss per share, basic and diluted |
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See accompanying notes to the condensed consolidated financial statements.
5
Confluent, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net loss |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Net unrealized loss on marketable securities |
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( |
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( |
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( |
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( |
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Net unrealized gain (loss) on derivative instruments |
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( |
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Other comprehensive income (loss), net of tax |
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( |
) |
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( |
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( |
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Total comprehensive loss |
$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
See accompanying notes to the condensed consolidated financial statements.
6
Confluent, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
|
Three Months Ended June 30, 2024 |
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Class A and Class B |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances as of April 1, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Vesting of early exercised options |
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- |
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- |
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- |
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- |
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Issuance of common stock upon exercise of vested options |
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- |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Other comprehensive income, net of tax |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Balances as of June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Three Months Ended June 30, 2023 |
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Class A and Class B |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances as of April 1, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Vesting of early exercised options |
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- |
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- |
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- |
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- |
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Issuance of common stock upon exercise of vested options |
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- |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Other comprehensive loss, net of tax |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Balances as of June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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7
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Six Months Ended June 30, 2024 |
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Class A and Class B |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Deficit |
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Equity |
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Balances as of January 1, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Vesting of early exercised options |
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- |
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- |
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- |
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- |
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Issuance of common stock upon exercise of vested options |
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- |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Issuance of common stock under employee stock purchase plan |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Other comprehensive loss, net of tax |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balances as of June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Six Months Ended June 30, 2023 |
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Class A and Class B |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances as of January 1, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Repurchases of unvested common stock |
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( |
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- |
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- |
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- |
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- |
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- |
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Vesting of early exercised options |
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- |
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- |
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- |
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- |
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Issuance of common stock upon exercise of vested options |
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- |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Issuance of common stock under employee stock purchase plan |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Other comprehensive loss, net of tax |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balances as of June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
8
Confluent, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
Six Months Ended June 30, |
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|
2024 |
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2023 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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||
Net loss |
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
||
Net accretion of discounts on marketable securities |
|
( |
) |
|
|
( |
) |
Amortization of debt issuance costs |
|
|
|
|
|
||
Amortization of deferred contract acquisition costs |
|
|
|
|
|
||
Non-cash operating lease costs |
|
|
|
|
|
||
Lease abandonment charges |
|
|
|
|
|
||
Stock-based compensation, net of amounts capitalized |
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Changes in operating assets and liabilities, net of effects of business combinations: |
|
|
|
|
|
||
Accounts receivable |
|
( |
) |
|
|
( |
) |
Deferred contract acquisition costs |
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
( |
) |
|
Accrued expenses and other liabilities |
|
|
|
|
|
||
Operating lease liabilities |
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
( |
) |
|
|
|
|
Net cash used in operating activities |
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
||
Capitalization of internal-use software costs |
|
( |
) |
|
|
( |
) |
Purchases of marketable securities |
|
( |
) |
|
|
( |
) |
Sales of marketable securities |
|
|
|
|
|
||
Maturities of marketable securities |
|
|
|
|
|
||
Purchases of investments in privately-held companies |
|
( |
) |
|
|
|
|
Purchases of property and equipment |
|
( |
) |
|
|
( |
) |
Cash paid for business combinations, net of cash acquired |
|
|
|
|
( |
) |
|
Net cash used in investing activities |
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
||
Proceeds from issuance of common stock upon exercise of vested options |
|
|
|
|
|
||
Repurchases of unvested common stock |
|
|
|
|
( |
) |
|
Proceeds from issuance of common stock under employee stock purchase plan |
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
( |
) |
|
|
( |
) |
Net decrease in cash and cash equivalents |
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
||
Cash and cash equivalents at end of period |
$ |
|
|
$ |
|
||
9
|
Six Months Ended June 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Supplementary cash flow disclosures: |
|
|
|
|
|
||
Cash paid for: |
|
|
|
|
|
||
Income taxes |
$ |
|
|
$ |
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
||
Stock-based compensation capitalized as internal-use software costs |
$ |
|
|
$ |
|
||
Vesting of early exercised stock options |
$ |
|
|
$ |
|
||
See accompanying notes to the condensed consolidated financial statements.
10
Confluent, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
Description of Business
Confluent, Inc. (“Confluent” or the “Company”) created a data infrastructure platform focused on data in motion. Confluent’s platform allows customers to connect their applications, systems, and data layers and can be deployed either as a self-managed software offering, Confluent Platform, or as a fully-managed cloud-native software-as-a-service (“SaaS”) offering, Confluent Cloud. Confluent also offers professional services and education services. The Company was incorporated in the state of Delaware in September 2014 and is headquartered in California with various other global office locations.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on February 21, 2024 (the “Annual Report”).
In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2024, the results of operations for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, the standalone selling price (“SSP”) for each distinct performance obligation included in customer contracts, deferred contract acquisition costs and their period of benefit, stock-based compensation expense, the fair value of acquired intangible assets, capitalization and estimated useful life of internal-use software, the incremental borrowing rate used to measure operating lease liabilities, and accounting for income taxes.
The Company bases its estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions about future events and their effects, including the impact of global macroeconomic conditions, cannot be determined with certainty and therefore require the exercise of judgment. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.
11
Significant Accounting Policies
There were no significant changes to the Company’s significant accounting policies disclosed in “Note 2 – Basis of Presentation and Summary of Significant Accounting Policies” of the Company’s Annual Report.
Recent Accounting Pronouncements
Recent Accounting Pronouncements Not Yet Adopted
Segment Reporting: In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
Income Taxes: In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, and may be applied on a retrospective or prospective basis. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
3. Marketable Securities
The following tables summarize the fair values of the Company’s marketable securities (in thousands):
|
June 30, 2024 |
|
|||||||||||||
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
U.S. treasury securities |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Corporate notes and bonds |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
U.S. agency obligations |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Commercial paper |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total marketable securities |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
December 31, 2023 |
|
|||||||||||||
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
U.S. treasury securities |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
U.S. agency obligations |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate notes and bonds |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Commercial paper |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total marketable securities |
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
||||