Good day, everyone, and welcome to the MongoDB Third Quarter Fiscal 2019 Earnings Call. Today's call is being recorded. At this time, I would like to turn the call over to Brian Dunnew, ICR, Investor Relations. Please go ahead, sir.
Thank you, Ann. Good afternoon, and thank you for joining us today to review MongoDB's third quarter fiscal 2019 financial results. Which we announced in our press release issued after the close of market today. Joining me on the call today are Dave Ibacharya, President and CEO of MongoDB, and Michael Gordon, MongoDB, CFO. During this call, we may make statements related to our business that are forward looking under federal securities laws.
These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our financial guidance for the fourth quarter full year fiscal 2019. Our market opportunity, our go to market and growth strategies, the potential advantages of our new products and enhancements, our ability to expand our leadership position and drive revenue growth and anticipated benefits from our acquisition of Mlab. The words anticipate, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward looking statements or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. We do not have plans to update these statements, except as required by law.
These statements are subject to a variety of risks and uncertainties that could cause actual results differ materially from expectations. For a discussion of material risks and other important factors that could affect our actual results, Please refer to those contained in our annual report on Form 10 K filed with the SEC on March 30, 2018, our quarterly report on Form Q filed on September 7, 2018, and our other periodic filings with the SEC. These statements are available in the Investor Relations section of our Web site at www.mongodb.com. A replay of this call will also be available there for a limited time. Additionally, non GAAP financial measure will be discussed on this conference call.
Please refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. And with that, I'd like to turn the call over to Dave.
Thanks, Brian, and thanks to all of you for joining us today to review our third quarter results. We delivered terrific performance of third quarter across all aspects of our business, our ability to generate best in class growth at significant scale, which now exceeds quarter $1,000,000,000 revenue run rate reflects our strengthening position as the next generation database platform of choice. We serve 1 of the largest markets in enterprise software. IDC now forecast that the database market is $59,000,000,000 in size in 2018, growing to $84,000,000,000 in 20.22. Reflecting a 9% compound annual growth rate.
Power of MongoDB sophisticated document model, large developer mindshare, and compelling customer proof points across nearly every industry and geography. To quickly summarize our 3rd quarter results, we generated revenue of $65,000,000, a 57% year over year increase, which was above the high end of our guidance. We grew subscription revenue 59% year over year. Atlas revenue grew more than 300% year over year and now represents 22% of revenue We ended the quarter with over 8300 customers, up 69% compared to a year ago, and we saw a strong growth across all major regions, including North America, EMEA and Asia. I do want to note that our results do not include any impact from the acquisition of MLab, which closed on November 1.
Our success with customers is based on the strength of our database platform and our recent MongoDB Europe event, we announced the general availability of MongoDB mobile, which gives developers a uniform way to work with data wherever the data resides. MongoDB Mobile allows developers to build faster, more responsive applications that can take advantage of the docket model for data held on the mobile device. Previously, developers were stuck using a feature limited tablet database for a mobile app. We also included several updates to MongoDB Stitch, our serverless platform, including the MongoDB Stitch SDK which allows data access regardless of whether it is held on the mobile client or the back end. This allows developers to query mobile and IoT data any way they want with local reads and rights.
Native JSON storage, indexing and aggregations. With Stitch Mobile sync now available in beta, users can automatically synchronize changes between data held on an end device and a backend database, even after the device has been offline. Expanded integration options, including more than 20 AWS services and additional authentication providers, which can all be exploited without learning new APIs adding back end code. Last week, we also introduced updates to MongoDB Atlas, including high throughput clusters on AWS that will enhance real time workload processing to accelerate new and existing applications. These clusters are optimized for for large datasets.
Support for cross region, VPC peering, which allows Atlas to communicate with the customer's virtual private cloud across regions via private networking. This will enable customers to connect data between disparate database nodes without utilizing the public internet significantly reducing security risks and operational work overhead and improving performance. We also introduced the service side public license or SSPL, a new licensing model for open source development in the cloud era. We are in a unique position to decide how our software is licensed because we are full copyright holders of all underlying MongoDB database code. We created this new license for community server, our free to download offering to make explicit the conditions for providing MongoDB as a service.
We are strong believers in open source and believe it leads to more valuable, robust and secure software. By introducing SSPL, we have given the community a new licensing model that built on the spirit of AGPL. We will continue to provide the same freedom to the open source community to use review, modify or redistribute the software. The only substantive change is an explicit condition that any organization attempting to offer MongoDB as third party service must open source the software it uses to offer such a service. Turning to our third quarter results in more detail, we again saw a healthy of new wins and strong upsell activity, including customers migrating existing workloads from legacy databases to MongoDB.
Our performance in the quarter exemplify the power of a land, expand, and expand model in our multiple vectors for growth. We saw success across the board. A number of exciting customer wins came from outside the United States, including countries where we are either beginning to establish a direct sales presence or where we have partners that are expanding our market reach. We are also seeing a growing number of wins with customers in traditionally conservative industries and markets, reflecting the growing popularity and mass appeal of MongoDB. We believe amongDB and growing recognition by the industry that we are the modern database platform of choice.
We also believe it illustrates strong returns we're getting on our sales and marketing investments. I would like to spend a few minutes reviewing the details of some key wins in the quarter. An important indication among Libby's strength in positioning within the ISV ecosystem is an agreement we signed this quarter with SAP. This agreement will enable our joint customers to rapidly build and deploy new applications leveraging MongoDB within the SAP cloud platform. Its enterprise platform as a service offering.
For Magacy's revenue and customs or HMRC, the UK's tax, payments, and customs authority has increased its use of MongoDB this past quarter. HMRC has enhanced its digital platform by using MongoDB as the core database and MongoDB Atlas is helping to further improve the experience of citizens who submit tax self assessments online. We signed 1 of our first Atlas Enterprise transactions in Korea, Raynest, a leading financial asset management mobile application company, achieved increasing developer velocity and flexible support for the sophisticated financial requirements in a secure environment by using MongoDB Atlas Enterprise. We signed our first Atlas win in Argentina with a large vertically integrated energy company that wanted to migrate its existing logistics platform from a relational database to technology that enabled their multi cloud strategy without having to rewrite a line of code. The Maryland Health Exchange, which provides different insurance plans to residents, chose MongoDB for complex requirements, like interfacing with multiple government agencies and being able to quickly determine if the consumer is eligible for subsidy.
1 of the largest banks in China chose MongoDB to build a new loan processing platform, which is expected to process thousands of loan approvals daily, and significantly reduced loan processing times. Michelin, a global tire manufacturer chose MongoDB Atlas to serve as a single highly performing database to manage the content of 100 of websites in 70 countries around the world, replacing a legacy database. Real time replication and continuous backups were required to deliver compelling user experience in every region. A large Italian government institution chose MongoDB to create a single view of the customers as part of its digital transformation initiative. Using MongoDB, they were able to bring together multiple previously siloed business units to create a holistic view of their customers and unlock new opportunities to better serve their constituents.
1 of Europe's largest manufacturers and distributors of gas and electricity recently moved critical billing data for multiple services from Oracle to MongoDB. This allowed for significant performance improvements, lower TCO and enabled the organization to capture new business more quickly. OAC, a leading Italian anti money laundering and supervisory reporting software company, replatform the applications from legacy relational databases to MongoDB to quickly identify anomaly indicators for suspicious transactions and to improve the performance and scalability of the overall application. Buffer, a social media management platform that consolidates social media publishing and engagement in real time, moved multiple applications to MongoDB Atlas, to significantly improve performance by eliminating queued reads and rights and dramatically reducing dis storage requirements. These wins were with customers of various sizes across different industries and countries, but all were driven to use MongoDB rather than alternative database technologies, due to a pressing need to innovate more quickly to better serve their customers and to take advantage of new business opportunities.
These win showcased a growing acceptance of MongoDB as a general purpose database and demonstrate that we're winning in a database market forecasted to be $84,000,000,000 by 2022. To further extend our leadership in the cloud, we recently acquired Mlab, a pioneer in the database's service market since its founding 7 years ago. MLab has been particularly successful focusing on developer centric startup communities via self serve model. We're excited to bring that self serve and databases service expertise to MongoDB and believe mLab is an efficient way to capture a large number of customers. We will shortly begin the process of moving mLab customers to Atlas.
Before I wrap up, I want to provide a quick update on our leadership team. I'm pleased to announce that we have appointed Michael Gordon to the newly created role of Chief Operating Officer which will be in addition to his current CFO responsibilities. This well in promotion reflects Michael's significant contributions and active role across all aspects of the company. To wrap up, we delivered outstanding results in the third quarter. We are seeing increased market momentum as a growing number of customers recognize the value of MongoDB can enable for their businesses.
Our products have never been stronger and our efforts to establish MongoDB as a strategic vendor for enterprises are paying off. We are well positioned to carry this momentum into the fourth quarter and beyond. With that, let me turn the call over to Michael to review the financial
Thanks, Dave. As mentioned, we're very pleased with our 3rd quarter performance, which reflects strong growth at significant scale. I'll begin with a detailed review of our third quarter results, and then finished with our outlook for the 4th quarter and full fiscal year 2019. Total revenue in the quarter was $65,000,000, up 57% year over year, subscription revenue was $60,100,000, up 59% year over year, and professional services revenue was $4,900,000, up 36% year over year. The strong performance of the business was broad based during the quarter, with healthy new logo and upsell activity among enterprise customers, as well as continued rapid adoption of Atlas.
Atlas represented 22 percent of revenue during the quarter, up from 8% in the third quarter last year and up from 18% last quarter. As a reminder, with the introduction of enterprise Atlas Enterprise Advanced features into Atlas, we expect the product distinctions between the two will blur Instead, customers will choose between based on which consumption mode best suits their needs. We continue to see strong global demand for our offerings. During the third quarter, we grew our customer base by approximately 900 customers, bringing our total customer count to over 8300, which is up from over 4900 in the year ago period, over 7400 at the end of last quarter. Of our total customer count, over 1700 are direct sales customers, which compares to over 1600 at the end of the prior quarter and over 1400 in the year ago period.
The growth in our total customer count is being driven in large part by Atlas, which had over 6200 customers customers, as well as new Atlas customers. It is important to keep in mind that the growth in our Atlas customer account reflects both new customers to MongoDB as well as existing enterprise advanced customers adding incremental Atlas workloads. We also continue to see healthy expansion from existing customers, Our net ARR expansion rate in the 3rd quarter remained above 120% for the 15th consecutive quarter. We ended the quarter with 490 customers at least $100,000 in annual recurring revenue and annualized MRR, which is up from $438,000,000 in the second quarter and $320,000,000 in the year ago period. Driving expanded adoption and spend among existing customers is a key component of our growth strategy and has been a consistent area of success.
We believe MongoDB comprises a small fraction of the total database spend of most of our largest customers, which represents a large and attractive market opportunity for us over time. Moving down the P and L, I'll be discussing our results on a non GAAP basis unless otherwise noted. Gross profit the third quarter was $48,100,000, representing a gross margin of 74%, which was consistent with the year ago period. We saw a gross margin improvement on a quarter over quarter basis for Atlas for subscription revenue not related to Atlas and for professional services. We are pleased with the gross margin performance in the quarter, particularly in light of Atlas' growth.
Atlas includes the underlying infrastructure and our success in reducing the infrastructure in support costs related to Atlas have resulted in improved Atlas gross margins. However, we continue to expect that we will see some modest reduction in overall gross margin as Atlas continues to become a bigger portion of our revenue. Our operating loss was $16,800,000 or negative 26 percent operating margin for the 3rd quarter, compared to a negative 44% margin in the year ago period. Operating leverage we are driving in the business, while investing in our continued growth. Net loss in the third quarter was $16,000,000 or $0.30 per share, based on 52,700,000 weighted average shares outstanding.
Turning to the balance sheet and cash flow. We ended the quarter with $522,700,000 in cash, cash equivalents, short term investments and restricted cash. Subsequent to the end of the quarter, we closed in the acquisition of MLab for approximately $68,000,000 in net cash consideration. Operating cash flow $2,100,000 in capital expenditures. Free cash flow was negative $9,700,000 in the quarter.
Short term deferred revenue was $136,600,000, up 48% year over year, while total deferred revenue of $153,800,000 was 34% year over year. Keep in mind that Atlas is a usage based model and generates less deferred revenue than Enterprise Advanced. Also, as a reminder, Atlas is often billed monthly in arrears versus the annual and advanced billing terms we see in our enterprise advanced customers. Lastly, quarter to quarter comparisons of deferred revenue could also have some level of variability due to timing. Before I turn to guidance, I would like to review the financial impact of the Mlab acquisition, which closed on November 1.
As Dave mentioned, Mlab substantially enhances our self-service knowledge and provides additional databases service expertise. From a revenue perspective, our current expectation is Mlab will generate approximately $5,000,000 of revenue in the fourth quarter and approximately $18,000,000 of revenue in fiscal 2020. For a profitability perspective, we expect MLab to be roughly breakeven in the fourth quarter and in fiscal 2020. Our intention is to migrate the MLab customer base to Atlas in the coming quarters. Our expectation for a modest decline in revenue in fiscal 2020 is driven by 2 assumptions: 1st, Atlas and MLab have different pricing models, We intend to honor existing pricing for migrated mLab customers when advantageous to them.
For customers for whom Atlas is priced at a discount to current mLab pricing, we will realize lower revenue as those customers benefit from the new lower pricing package. 2nd, we anticipate the potential for some customer churn due to the disruption from switching platforms, and the large number of small customers in Mlab's customer base. Importantly, these assumptions were part of our acquisition thesis and incorporated into our purchase price. We should also call out that Mlab customers spend significantly less per year than self serve Atlas customers have experienced to date reflecting the breadth of appeal of offering MongoDB as a service to the long tail of the MongoDB community. I'd now like to turn to our outlook for the fourth quarter and full year of fiscal 2019.
Beginning with the 4th quarter, we expect revenue to be in the range of $73,000,000 to $74,000,000, Non GAAP loss from operations is expected to be in the range of negative $21,000,000 to negative $20,000,000 and non GAAP net loss per share in the range of negative Again, as mentioned, this includes $5,000,000 in revenue from MLab. For the full year of fiscal 2019, we are raising our revenue outlook to $243,700,000, to $244,700,000. We're also improving our profitability outlook with non GAAP loss from operations now expected to be in the range of negative $81,100,000 to negative $80,100,000 and non GAAP net loss per share to be in the range of negative $1.53 to negative $1.52 per share based on 52,000,000 weighted average shares outstanding. Given the size of our market opportunity, the strength of our product market fit and the attractiveness of our unit economics, we believe it makes sense As a result, we will continue to invest in the business in fiscal 2020, with the goal of driving continued high growth, while demonstrating continued operating leverage. In closing, MongoDB continued to perform at a very high level in the third quarter.
We are successfully executing against our strategic priorities, which is driving strong growth in fiscal 2019 and beyond. With that, we'd like to open
We'll take our first question from Raimo Lenschow with Barclays Capital.
Hey guys, this is actually David Rainville on for Raimo Thanks for taking our question. And again, congrats on another impressive quarter here. Maybe we start with Atlas, if that's what everybody wants to talk about and the numbers continue to be so strong. Can you give us that maybe a little bit more color on the types of workloads that you're seeing now versus what you were seeing a year ago? And maybe an update on where you feel you are on your journey of bringing enterprise advanced features onto Atlas as you're trying to play this ASP game going forward?
Sure. So just as a reminder, I mean Atlas was introduced about two and a half years ago. So as you can imagine, the workloads that customers first started with were probably Tier 2 and Tier 3 workloads or maybe even development test workloads. And we're clearly seeing now large sophisticated customers moving mission critical workloads to Atlas. And that's reflected in both the sizes of deals as well as as well as the broad based set of use cases that customers are using for.
So I think people are viewing Atlas is truly viable platform to run mission critical applications.
Makes sense. Thanks for that. And maybe just a quick follow-up on SSPL. Any early customer feedback or feedback from the community from the changes that you've done?
In general, the feedback has been quite positive. I would say for it was non event because most customers do not plan to offer MongoDB as a third party service. So that was really a non issue. And I think generally the feedback from the community has been quite positive. There's always be some people who don't like any change, but most people recognize that given we are now in the cloud era, there has to be a way for open source companies and open source projects that thrive, in the cloud era and the SSPL that a lot of people have said is the best way to do that.
Makes sense. Thanks for that.
We'll go next to Sanjit Singh with Morgan Stanley.
Hi, thank you for taking the call. Hi, Dave. Congrats, Michael, on the promotion, well deserved. I have two questions. I'm actually the 2 parter on just getting an update on go to market.
So Dave, I think when you updated us on last quarter, You said that you haven't seen a whole lot of contribution yet from the IBM And Accenture partnerships that could be a driver in the second half. So I want to see if you got an update there for us on sort of the partner ecosystem contribution. And then secondly, in terms of penetrating that long tail, you guys were up to, I think, $45,000,000 download, but I think it was around $30,000,000 at the time of IPO. So the big increase there give us a sense on how, you guys are planning to capture some of that, that long tail and what MLab can bring in terms of that part of the equation? Thank you.
Sure. In terms of your partner question, last quarter, we did do a few deals with IBM. We feel like this is the start of a a very healthy long term partnership. Our pipeline with IBM is growing quite significantly. And while I don't want to commit to any specific numbers, we very good about the relationship, not just here in the U.
S, but actually in Europe and also in Asia. So that relationship is really working well. And I I speak to the GM of the business who's most closely tied to us on a monthly basis. So we have a pretty deep relationship up and down the organization. With regards to Accenture, we actually, I'm not sure I said that things were not taken off yet with Accenture.
We're actually doing quite a few deals with Accenture. In fact, some of the pretty material deals we did this quarter were through partners like Accenture. And Accenture is also helping expand our reach into markets where we may not have a lot of in market coverage. And so that relationship is going well. We feel very good about that relationship.
They've actually built a bunch of products on top of MongoDB and they've enabled their people to think about using MongoDB for a variety of use cases all the way from helping customers migrate to the cloud helping customers migrate off legacy platforms, etcetera. So we feel really good about that relationship as well. And then in terms of your The second part of your question was, just remind me again, was, no, the long tail. Yes, the long tail. So one of the things that really impressed us with MLab was that they built their business without hiring a single sales rep.
And so they basically had to build their self serve business. Now we also started off building our business on Atlas with self serve, but they obviously has have been doing this a lot longer than we have. And that expertise, we're inculcating into our own organization and really expanding our self serve business. So we believe the best way to go after long tail is through self serve, at least in the initial customer acquisition. And then where appropriate, we will get our sales team to follow-up and help expand those customers, depending on the size and scale of those customers.
But the long tail will be our natural go to market motion for going after the long tail. I'm sorry, the self serve motion will be the natural sales motion to go after the long tail.
Understood. And thank you for the color and congrats on a strong quarter.
We'll go next to Brad Reback with Stifel.
Great.
Hey, Brad. Hey, Brad. We're having trouble hearing you guys.
Can you hear?
It's breaking up.
Hello?
Yes.
Hey, sorry about that. Michael, quickly on mLab, how should we think about the revenue breaking out between subscription and services?
There's really no services think of all $5,000,000 as subscription and analogous to the self-service bucket, although as we called out, it's lower spend per customer.
Got it. Got it.
And then quickly, Dave, on your commentary around all these really impressive enterprise wins around the country and the world that is, how should we think about initial order entry for new customers today versus the size they were maybe 2 years ago. How much bigger can you start with the customer nowadays?
Well, we have seen our initial lands getting bigger and bigger. I think that's a function of people removing, and getting comfortable with moving engaging with us with more and more mission critical workloads, either through our enterprise advanced solution or through Atlas, But we're also seeing very significant expansion. As Michael mentioned, this is yet another quarter where expansion rates were north of 120%. And so we don't try we naturally this is truly a land expand, expand business. So we don't try and close, go elk and hunting and try and close entire business upfront.
It makes no sense for the customer. And frankly, we rather engage with them in a way that they feel very natural. Creates less friction. And once they get more and more comfortable, they start coming back and buying more. And that's great for us as a business.
So, That's the typical way we engage with customers, but customers are, our lands are getting bigger and bigger as customers get more and more comfortable with using MongoDB for more and more critical workloads. Thank you.
We'll go next to Tedlyn with Goldman Sachs.
Hi, thanks for taking the question and congrats on the new role, Michael. I guess, so in terms of the competitive landscape, against, both the public cloud guys, which you've noted that you have a technological advantage against in the past. And, but especially kind of the new NoSQL players or the pure play NoSQL players. Any color there on win rates, who you're seeing, and as people are standardizing on a single notes equal offering or if they're choosing still the best database for every use case?
So obviously, there's some talk by the cloud providers about having a database, different database for every solution. We don't think that that complete sense. 1, it's very hard for an organization to train support and, build applications across all these disparate databases. Moreover, you now have to spend a lot of time making sure all that data is sync across all these different databases. And, and so that becomes pretty expensive and time consuming.
So we do believe while there may not be one database for everything that people want a general purpose database to serve a majority of their use cases. And we believe we're well positioned to do that. The document model is a super set of a key value store. It supports our document model supports graph functionality. We support joins in the term of a feature called dollar lookup.
So the breadth, we announced transactions in the middle of this past year, So the breadth and scale of the use case of the customers running on MongoDB is quite profound. So we believe that we're well positioned to go after market and that's a function of why we believe our developer mind share is really second to none when it comes to next generation databases. And that's referenced by all the external market data out there.
Great. Thanks for the color, Dave. And I guess as a follow-up digging in on the SSPL versus the AGPL, I guess what drove kind of the change in strategy there? And I think you mentioned before that the AGPL kind of prevents people from running Mongo a service? And so are you seeing demand for third parties that want to offer MongoDB as a service?
And what are the implications there for Atlas? Thanks.
Right. So, SSPL was built on the spirit of AGPL. We believe that it was quite clear that, if people wanted to offer MongoDB as a service, they couldn't do so given the licensing around AGPL, but we started seeing some international providers starting to test the lines about what was and what was not possible. And we thought it would just make sense to be make it very explicit the conditions required to offer MongoDB as a service. It's not a restriction.
Anyone can offer MongoDB as a service there are conditions that you need to conform to, to be able to do that. And we want to make that very clear. And the reaction has been incredibly positive from customers. They think it makes sense. They want to see us continue to grow and be a healthy company from users who have been very positive.
And, and I would say in general, the community has received the feedback quite well, as you can see in some of the press reports that have come out since our announcement.
Great. Thanks very much.
We'll go next to Brent Bracelin with KeyBanc Capital Markets.
Thanks for taking the question. I'll start out here with Dave here. Labs, obviously, contribution $5,000,000 here in Q4. Have you talk to some of their larger customers? And if so, what's been the kind of early response after acquiring that asset so far with some of their maybe larger customers?
So the short answer is, yes, we have talked to some of the larger customers the response has been generally very positive. And, as Michael mentioned, there are some certain SKUs that are more than what we offer Atlas. And in some cases, there are situations where they have a cheaper price. So we plan to make it be very customer friendly, and honor the most advantageous price for customers. So we expect that to have a little bit of pricing compression And we also expect that there will be some natural churn because there's some really tiny customers who just in the process switching platforms may decide to bring that back in house.
And so, but in general, the feedback has been very positive. We're very excited to basically acquire the entire, MLab team except one person. And they're super excited to be part of MongoDB and we feel that together, we really can build a very large database of service offering.
Great. Helpful color there. And then in the script, you mentioned conservative industries starting to kind of embrace Mongo, you also called it out here on the call. What type of conservative industries are there? And maybe just drill down into kind of dialogue you're having there and why you're kind of calling that out this quarter?
Yes, I mean, like one example I give you was, HMRC, which is really the IRS of the UK, they were existing MongoDB paying customers and they recently expanded their use of MongoDB by using Atlas. So if you had told me 6 months ago that we'd have a large government entity in the UK using Atlas, that frankly would have surprised me because, you know, those organizations, we had another large government institution in Italy decide to use us use MongoDB to serve their constituents better. We have, people in Latin America and markets like Argentina where we don't have any of our own people there today who are now using Alice. We only we have a very small team in Korea. And all of a sudden, we have people using MongoDB pretty quickly.
So we feel like what that really speaks to is the popularity of MongoDB as truly, the database the modern database platform of choice and the mass appeal for all these wide and disparate use cases. And so So we feel that that's a strong indicator of the opportunity we have ahead of us.
Right. Got it. And then 2 quick ones for Michael, if I could, here on deferred revenue. Shorts have deferred actually accelerated in the quarter, even with that less mix shift kind of, which I thought would be a little bit of a headwind. What drove the acceleration in short term deferred?
And how should we kind of look at that metric versus the mix shift to Atlas, which has little to no deferred revenue component?
Yes. So I think that the headline trends, are obviously is a very strong quarter. Billings, certainly not something we guide to and has a lot of quarter to quarter variability and you're absolutely correct. In the commentary around how does Atlas behave? And Atlas doesn't add nearly as much a deferred revenue perspective as compared to enterprise advance.
So I wouldn't go extrapolating out from the quarterly results, especially we expect Atlas, which is growing faster than the rest of the business, which is growing quite quickly, to be an even larger portion of the business. So I think it's mostly just the fact that it was a very strong quarter across the board.
Got it. And then last on the gross margins, particularly the subscription gross margin, looks like this is the 1st quarter in over a year that that actually increased even with, again, Natless mix shift walk through the drivers of improving subscription gross margins? Thanks.
Yes, sure. So we saw subscription gross margin improvements, both for Atlas, as well as for sort of enterprise advance and the rest of the non Atlas revenue. So again, kind of strong across the board I think the Atlas progress is probably the most notable, because that's where we've been actively working. And as Atlas continues to become a larger portion of the revenue, We've been very pleased with our progress on that front. A lot of it relates to infrastructure, but we've also started to see very successful, internal efforts in the initial fruits from driving lower support costs as a percent of revenue.
And so that's been very valuable. I continue to think that we'll have sort of the shallow you that we've talked about because the business is growing faster than we can optimize every dial and every lever. And then I guess I'd also call out in the short term, Mlab's business, while small in the Grand Canyon of MongoDB on a run rate basis based off of the numbers and the guidance we've given is close to a quarter of the Atlas business. And that was at lower gross margins. And so it will take a little bit time, when we to integrate them and kind of harmonize those margins.
And so I think that'll be a Q4 headwind for sure and probably at the beginning of the year in Q1 and Q2 as we kind of work through the integration plan. And we can certainly update our outlook on that to get out to March in the Q1 guidance, but want to call that out for folks as well just so people to get overly carried away and extrapolating numbers and things like that.
Perfect. That's all I had. Thank you. And very helpful.
We'll go next to Pat Walravens with JMP Securities.
Oh, great. Hi, guys. Thank you and congratulations. Hey, first of all, on the server side public license, so was mLab self, one of the vendors that was sort of testing the limits of the
with MLab in the early days, as we when we introduced Atlas, that obviously, as you can imagine, that relationship terminated, So, technically, MLab did not have, an agreement with us to offer MongoDB as a service, that ultimately brought the 2 parties together. And I think the deal we struck was both good for MLab shareholders and good for MongoDB shareholders because allowed us to accelerate our MongoDB Atlas business brought some new competencies around self serve and allows us to, essentially position us for long term growth. So it was a transaction that made sense for both parties.
Okay, great. Just wondering. And then does can people get around this just by using versions of the community server from for October of before, I guess, October 16th?
So any version before our SSPL announcement was licensed under AGPL, which we still also believe has pretty broad restrictions around what you can do when offering MongoDB service. That being said, if someone want to really test, this using AGP, they'd have to fork the code base prior to our announcements and then have to manage that themselves, which frankly would be a pretty herculean task. Secondly, the community would have a tough time getting a large following because as we add features, and new capabilities to our platform, the gap between the 4th version and us would just continue to increase. So that would not be a very attractive kind of option for most people.
All right. And then this is totally different subject. So going back to his as I look at a really old bottle, I think Oracle went from roughly $320,000,000 in revenue to 6.12 from 90 to 91 in just the database side of the business for getting the apps. Can the environment support that sort of thing happening again, or is it different time?
Well, one I would say is there was a very different licensing model that was a perpetual Lysomiles. So you could write it down as revenue. So that's a big difference. And, obviously, the market was much more nascent. And so I think it became clear that Oracle is an emerging as a leader, the market kind of gravitate towards them.
We believe that those same dynamics are applying here, where I think people are sort of grabbed to MongoDB, but given our revenue recognition model and so forth, will be, I don't want to start setting any guidance, but I think in general, trying to build a subscription business at the same rate as a perpetual upfront business is 2 very different challenges. Thank you.
Hey, Tyler. Hey, Tyler. Hey, how you guys doing? My question was related to the licensing changes. You talked about some positive responses from your customers, but I'm just curious what the feedback, if at all, you've had from the major cloud service providers on the licensing change?
Candidly, we haven't had much feedback at all, but I think the announcement probably has been lost on anyone because it's pretty widely covered. I don't think I think there is a lot of debate in the industry today about how much do cloud providers really contribute back to open source the open source community. I mean, they're very good at taking open source projects, plugging into their cloud platforms and then monetizing it, but they're not so good at giving back community, especially when you measure it on a percentage of R and D. About a half of R and D goes towards our free community server. Which really helps everyone.
And there's no one, no cloud provider that comes even close to that. I would say even spends maybe in 1% of the R and D and giving back the community. So I think that speaks to the differences in the contributions back the community. And I think that's become burning issue for a lot of people. And when it comes to customers, it was really a non event because 9, 9, 0.99% of our customers have no interest in offering MongoDB as a service.
So it's a mood issue for them.
Great. Thank you. And as we think about just the mix of the business that's tied to legacy replacement, Was there any change there? I think it has historically been about around 25%? And just related to that, how have the use cases evolved with transaction support, if you're that's driven any different type of customer, different use case, just those two questions.
Thank you.
Yes, sure. So as I mentioned earlier and one of the early questions, we're definitely seeing an increase of mission critical workloads moving to MongoDB. And I mentioned one of the use cases in the prepared remarks was, an energy company moving live. It's billing data to MongoDB, what more important than utility than its billing data. And we're seeing customers start using our capabilities around transactions.
We've had a bunch of deals close where that drove that deal. And it also gives a lot of confidence to customers who may not need transactions today, but know that it's available for them in the future. So really double down on MongoDB. And so we're definitely seeing that, people are viewing MongoDB as truly a viable mission critical platform to run the most sophisticated demanding workloads. And, I'll let Michael answer
the question about the mix of legacy Tumonga. Yes. So given that backdrop, we continue to see very strong increases in the applications that are migrating off of legacy relational workloads. As a reminder, I think we've called this out before, but Atlas probably sees a little bit less than what we've historically seen in terms of the percent migration. And if you look at sort of like the overall business, it's probably down on a percentage of new business.
But if you look at the absolute dollars of migrations that were driving, they're up significantly.
Thank you.
We'll go next to Jack Andrews with Needham.
Hey, good afternoon gentlemen. It's actually condo filling in for Jack. With the rise of DevOps we're seeing other employees become more important in the business in the buying cycle, So how are you guys levered to some of these changes and has helped easing motions and sales efficiency, especially if you consider the self-service nature of Atlas?
Yes. So, I mean, so we have multiple modes of going to market to customers. One is obviously self serve. So if a customer just wants to basically engage with us without having to talk to a salesperson that can easily do so and sign up for Atlas on our website, pick what cloud platform and instance and they literally get a connection string and they're up and running. Then you have smaller customers engaged with us through our inside sales channel.
That channel has been really effective in pushing Atlas because the product market fit for Atlas is incredibly strong for those customers and they range from very early stage companies to venture companies, companies are growing very, very quickly. And we have people around the world who, who help us close through that means. And then we have our field organization who, work with the largest set of customers, There could be large banks, media, telco, tech companies, etcetera, insurance companies. And there, where the the buying process is far more complicated as multiple stakeholders that need to be engaged. Typically, the deal sizes are bigger.
So there may be a business case required that tends to be a pretty rigorous technical validation phase, where we need to go in and prove the technology really works as advertise or really addresses the problems they're trying to address. That's where you need a field organization, which also includes both salespeople and technical people on the in the field, working with our customers. And yes, I mean, people are moving to more of a DevOps model where there's a merging of development resources and the operational resources, but in large organizations, there still tends to be, a fairly discrete set of stakeholders who need to be bought on above and beyond that, even people people who have a security background because obviously they're storing their data in MongoDB and they need to validate that we pass all the stress tests. That they may have around the security of our architecture.
Okay, that makes sense. And there's some vendors out there making a bigger push into data warehouse with with Hive and HVAC. Although you guys have a different use case and richer query language, are you seeing any changes in the competitive landscape as these make a bigger push in terms of sales and marketing?
No, we're not seeing, in fact, we're seeing the reverse. We're seeing our customers bring us into more of the analytic workloads and operationalizing a lot of the data lake use cases that they had tried with alternative vendors where they found either too complex too costly or just too long to get to time to value and they're bringing us. And part of the value of using MongoDB is your most up to date and accurate information sits in your transactional database. So being able to run analytics using MongoDB, it really allows people to get immediate insights into their business and that's incredibly valuable to customers.
Thank you.
We'll go next to Chris Abilie with Nomura.
Hey guys, thanks for taking the question. Can you give us a little, idea on where we are in the actual approval process with OSI for SSPL?
Sure. So, we submitted in, as in conjunction with our public announcement, we made our first submission to OSI, on October 16th. And their process, it tends to be an open and transparent process. So You tend to get a lot of feedback in terms of commentary and so forth. And we had obviously sought out advice and counsel from a lot of open source domain expertise.
And we have obviously, as you can imagine, a lot of expertise in house, And so that drove the issuance of the SSPL. We did get some feedback that we thought was merited some deliberation and we've come back with some adjustments. I believe it was about a 2 weeks ago. And, and we're we'll see what happens from there. I want to be very clear though that part of our motivation to work with the OSI is to really get SSPL adopted, not just by MongoDB, but by the industry as a whole.
So that's what our motivation was with the OSI. No matter what the OSI does, we own 100% of the copyright to the code of MongoDB. So like any license any owner of the IP, we have the right to define the terms of use with our license. So there's no risk for us. If for some reason, OSI doesn't ratify this or in some cases rejects or if it ends up rejecting this, This will not change our posture about the use of SSPL.
The purpose of going to the OSI was really get this established as an industry standard so that others could use this license as they think about their own business models.
We'll go next to Rishi Jaluria with D. A. Davidson.
This is actually Hannah on for Rishi. Thanks for taking my questions. Just first off, I was wondering if you've received any specific feedback from Atlas customers on any functionalities they wish Atlas had?
Yes. I mean, as you can imagine, we get we have lots of customers And frankly, that's how we run our business. I mean, we constantly listen very, very carefully to what our customers are doing, what new features the Cape they're asking for or anticipating what new things they may want based on the usage patterns we see. So that's frankly part and parcel with, how we run our business. So that's kind of ingrained to the core of who we are.
We run a lot of customer advisory boards in North America and Europe and soon in Asia to just get that continue to make sure we get all the feedback we think is appropriate along with obviously our direct engagements with those customers. I would say one big feature that, is on the horizon is customers asking to run the same application across different cloud providers. And that's not just for pure lock in concerns, but it's also based on customers who want to take advantage of different capabilities on different cloud providers. Because every cloud provider is now obviously trying to compete against other cloud providers. And so that's an area that, you'll probably see us make some announcements early next year, and that's something that we're looking at carefully.
And again, we have so many different customers of different providers. There's customers pushing on things like performance, scalability, and geographic distribution and so forth because we're one of the few platforms, probably the only platform that really enables customers to deploy a globally distributed database. And I should also point out that given that we run across all the 3 major cloud providers, we have the widest geographic coverage of any database of service offering, which is a very compelling, value proposition to customers. And so I think that's big reason why MongoDB is winning.
Okay, thanks. That makes a lot of sense. And then second, regarding operating margin going forward, are there any specific changes you feel you still need to make or do you feel the improvement will just come from top line growth and scaling the business and driving towards more self serve?
Yes, I don't think that there's like a particular magic bullet, other than just sort of the scaling and operating the business in the way that we have continue to do. So I wouldn't say there's like a specific thing per se, that will suddenly result in a step function change. I think it's more sort of the operational blocking and tackling and scaling of the business.
Thank you.
And with no further questions in the queue, I would like to turn the call back over to David Cherry with any additional or closing remarks.
I'd like to thank everyone for the time today. We're very pleased with our performance this third quarter and we, we'll get back to work. So thank you very much for your time. Take care.
This does conclude today's conference. We thank you for your participation. You may now disconnect.