Thank you for joining us. I'm really happy to have Rohan here from Confluent. If you think a lot of stuff, Rohan, a lot of stuff happened the last few weeks, and, you know, you guys are more on cycle and so tend to forget because you're the off-cycle guys now, and it's like every day there's, like, a crazy movement. If you think about, like, to get everyone back up to speed, can you talk a little bit about Q3, what you saw there, and then we'll take it from there? Yeah, for sure. First of all, great to see you. Yeah. Thank you for having us, and good afternoon to everyone. Well, when I think about our Q3 quarter, it was a solid quarter in general. We had continued momentum from a top-line perspective. We grew north of 30% and we improved our margins by 20 percentage points. And while we were doing this, we also have o ur net retention rates, which is a metric that I candidly look at all the time, was just shy of 130% for the total company. And our Cloud business net retention rates were north of 140%. Another metric that I focus on is health of our installed base of our customers, which is gross retention, and we came in at 90%+ for another quarter. We've been consistently in that ZIP code since our IPO. Having said that, we also had some puts and takes as we provided guidance for Q4 2024. Yeah. We called out three factors. The first one is fairly idiosyncratic, things happening with two of our customers. Second piece was around, we're seeing this slowdown in use cases for our Digital Native segment, which is a small piece of our business. Yeah. And the third piece was, our transformation we are going through on the go-to-market side with respect to moving to a more consumption-based comp plan. And these three had implications to Q4 and 2022, which we called out. But taking a step back, good solid Q3 with a few puts and takes that had an impact to our Q4 and 2024. The question I got a lot from investors was that something where the end demand changed for you guys? Or was this kind of like, you know, sometimes you get unlucky, like unfortunate timing. You know, those three things that you mentioned, you know, they don't seem to be like a fundamental change. Like, how did you see? Yeah. I mean, I always like to take a step back and look at the opportunity. When you really think about it today, data streaming is something that's top of mind- Yeah. For every company out there. And when you couple that with just the secular tailwinds around cloud, I think those are the two biggest drivers for our business. That kind of shows up in our opportunity that we have, a $60+ billion market opportunity, and this really large open source ecosystem, where greater than 150,000 customers are actually using open source Apache Kafka. Hmm. So from an overall opportunity perspective, we're very excited with respect to the opportunity. How you take advantage of this opportunity matters. Yeah. Of course, we'll be talking about that piece, but that's also another point that, you know, we should talk about as we go through it. Yeah. Yeah, yeah. Okay. And then the point that came up a lot was one of the customers you pointed out. It seems to be bringing everything back in-house, you know, and that kind of created some fear in the market that people were like, "Oh, people will move back to open source, open source Apache Kafka," and, you know, it's, it's, you know, you don't pay for it because it's open source or you pay differently. Is that like a big beginning of a trend or what? What... How would you see? Yeah. I think the customer you're talking about is this gaming customer we called out. Yeah. This gaming customer had made an independent architectural decision to move from cloud to on-prem. Yeah. The reason they did that was they had an outage by another cloud provider. So, as a result of that outage, they made an independent decision to move on-prem. Yeah. Confluent happened to be a cloud provider, and they got impacted by that. Mm-hmm. Having said that, we're in active discussions with them with respect to helping them with their on-prem workloads. Yeah. our Confluent Platform product- You can do that, yeah. is a meaningful differentiator with open source platform, with respect to not just on the streaming side, but also on the connectors, the governance, the security. Yeah. So, I'd say, yeah, that's the dynamic. I mean, we don't see this as a trend. Yeah. This doesn't- It seems odd. Yeah. It seems against- It seems against, with respect, you know, we don't see a whole lot of companies doing it. Yeah, yeah. It's like, and the other piece also, there's one thing to go from the cloud through to self-managed on themselves, but then you also go from managed to open source, which kind of seems like a step backward almost there. Yeah, I mean, these use cases of Digital Native customers being on-prem and doing open source is something that is very, very unique, like, like we said. So it's- Yeah. Not a trend, one-off, and, you know, that's, that's how I'd call it. That's why I specifically mentioned that's fairly idiosyncratic versus- Yeah. Being holistic across the business. I apologize, like, it's another kind of case, but I better clear it up, and then we can move forward from there. Talked about another customer that had sort of like a corporate action and kind of changed, the, I think the relationship and kind of go down some rollouts there. Any update there? Like, it seems like just like it's, there's corporate action and then everything freezes basically until it kind of opens up. Well, I won't provide mid-quarter update. Yeah, yeah, yeah. What I'll do is I'll provide a little more color around what I shared during the earnings call. Yeah. This, this customer is a large customer, multi-year commitment partnership, and whenever you have relationships like this, it's typically engineering- to- engineering discussion. Discussion comes up with respect to a forecast, which is the forecasted consumption curve. Yeah. The actual consumption curve actually happens to be slightly lower than the forecasted consumption curve. Or another way to think about it is our consumption curve is actually moving to the right. Right. As a result of that, we saw a partial impact in Q3. We're going to see a full quarter impact in Q4 and some impact in Q4. Yeah. That's the dynamic. I mean, we're partnering with this customer to make them successful in their, you know, real-time data, data streaming journey, and that's where we are. Yeah. And I wanted to go get those questions out of the way because the other thing I want to talk about is like, in general, like, demand or interest in the clients, because I was at your conference probably, and I mean, I have to say, I was like... excitement was really visible, that people want to do more stuff. But I also realized people are, they need Confluent because Apache Kafka is complex as hell, excuse my language, but it is complex. You know- Right. I'm struggling sitting in the session. What are you seeing from the field or like in general from the field when you talk to people out there? Yeah. I mean, I started the demand for data streaming, real-time data is great. Yeah. We have a huge opportunity, and I touched on that. How you take advantage of that opportunity matters, and we are doing it with meaningful differentiation, not only on the technology side, but also on the cost side. Let me spend a little bit of time on each of them because it's important. Yeah. On the technology side, we. You heard me say this, our products are cloud native, complete, and everywhere. What do we mean by that? Cloud native is our core engine that powers our Confluent Cloud and our products. Helps us, you know, elastically scale up and down, provides really high SLA, and obviously that is a differentiator from a cost perspective. Actually, complete, Confluent is not just a streaming solution. We're a complete platform. Yeah. Where, in addition to streaming, we have connectors, we have governance, and we have our stream processing product. Last but not least, we are everywhere. That means we can take care of your workloads on-prem, any cloud, and in a multi-cloud environment. Mm. Those are the differentiators that obviously helps us gain more traction in the marketplace. Yeah. I mean, you know, on top of that, we provide meaningful ROI and TCO benefits, which obviously is very helpful. And then you have events like, like conference. Does that kind of show up for you, like in terms of pipeline, pipeline interest? Like early stage, so we don't talk numbers here, but like, does that... You know, how, how much of a, kind of, impact does it have for you guys? Yeah. Anytime you have a big event, they'd say, top of the funnel, you see some activity. Yeah. There is a cadence to these events. For example, you know, how we think about our guidance, how we think about our forecasting, these kinds of events are baked into it. Yeah, yeah, yeah. They're all part of the process. But to answer your question, yes, you know, when you see these events, of course, more people are hearing about Confluent, more people are hearing about our products, and that shows up in the numbers from the top of the funnel perspective. If you think about, like if you compare the conference with the last few years and the impact it had on top of the funnel, do you see it increased? Like how, how does it play out? Do you see it increased there in terms of top of the funnel, because there's more people out there, more interest, more understanding of what you can do there? Yeah. I wouldn't compare year to year- Yeah. W hat I'll tell you is top of the funnel signups. We have our internal forecast and what we are seeing as of the quarter at or above our forecast. So that's good. Yeah. I mean, we are seeing the traction, we are seeing the interest, and, you know, we're not surprised, but we're seeing that. Play out. Yeah. Okay, perfect. Yeah. And then, if you think about, like, your customer base, like obviously the first adopters for Apache Kafka or like the internet companies, Digital Natives. But as you think about like, the follow-on adopters where like, you know, like banks that kind of use it for credit card fraud, money laundering, et cetera. If you think about those kind of classy customers, like the banks, like where are they on your adoption journey? When I reflect on it, it's interesting because you speak about the... Every company today is becoming a data company. Yeah. E very company today is becoming a software company, and data is at the heart of what they are doing. And how they are able to harness their data actually is a competitive advantage for these companies.... So from our perspective, what we do is we help these companies basically realize their data in a real-time manner. We help them do it in an economic manner, and we help them do it in a safe manner. So with that as a preview, I mean, you know, the regulated industries in general, we've seen a really good traction over the last couple of years. Mm. Some of our customers here, I'll give you two examples. I would say probably a year back, we called out this Fortune 50 bank, which started off as a small customer with a handful of use cases, ended up being a $10+ million ARR customer. And, that customer is probably still has a huge amount of runway ahead of them. And those are use cases that we've seen. I mean, our $5 million and $10+ million customers, although we don't share the data, they, they think they are kind of moving in the right direction. Mm. Right? Another customer we called out was this job search company, which started off as actually a Pay As You Go customer. Uh. Self-service, and they ended up being a $10+ million ARR customer. So I think the momentum is there, and the best way to think about it is, when you look at our customer cohorts, the $100,000+ and $1 million+ cohorts over the last 12 odd months, we've seen good, good traction. And that tells you that our customers are progressing in their journey- Mm. to be, you know, the central nervous system or data in motion journey they're progressing well. Yeah. The momentum is good. F lip side of that question is like Digital Native. You know, obviously, that was always, that would, that would always be like the holy grail. I imagine, like, they kind of give up on the whole Apache Kafka. Where are they on the journey of, like, do I really need to do it myself? Yeah. And, you know, when you asked the previous question, you briefly touched on it. I think it's important for folks here to understand just the overall journey. Right. Our founders wrote Apache Kafka while they were at LinkedIn, and they put it out for open source. That's step one. Confluent was formed after that, and we started off as a on-prem. We started off our first product was on-prem, and then Confluent Cloud is about five years old. So that's important to understand because the Digital Native segment in general, the early adoption in the Digital Native segment. Right. Was all open source. Yeah. Right? And, when you think about that, how are they spending their money on and time on? Three things: number one, they're spending their resources on infrastructure. Number two, they are spending their resources on very, very expensive Apache Kafka engineer. Mm. Depending on the size of your shop, it could be from a handful to up to 20. The third category is they're spending their resources on bolt-on applications, on security and governance to make sure the right data is accessed by the right people. So what we do with Confluent Cloud is we are managing this service. Yeah. Obviously, our view is, over the long term, a huge chunk of this open source Apache Kafka market will eventually be cloud managed. Right. We are in pole position to actually take advantage of this opportunity. We're in pole position to take advantage of this opportunity. Mm. Yeah. So that's, that's how I think about it from an overall Digital Native perspective. Yeah. If you ask me, where are you on the opportunity? I'd say, just given the timeline, I show that, right, the bigger opportunity is actually in front of us. Yeah, yeah. Versus behind us. Oh, yeah. Of course. Yeah, yeah. For sure. Yeah. T he last bit from product side is, like, Flink, really like adjacent to Apache Kafka. You know, you guys, you know, had a small acquisition that's now trying to build out the cloud platform there. Where are we on that Flink journey? Yeah. In terms of it product ready, and then, like, we can talk about, like, how customers are adopting it. Yeah. What we've noticed is increasingly today, engineers not only want to focus on streaming, they want to make sure the streams are enriched and you're building applications on it for real-time data and analysis. Right. That's why stream processing continues to be really, really important part we're doing. What we've also seen is that Flink is fast becoming a standard. Mm. That's one of the drivers why we acquired Immerok earlier this year. Yeah. Acquisition candidly has gone very well. Across the board, we're hitting all our internal timelines, and the product, in our Immerok conference that you recently attended, we had a public preview of our product, where a large chunk of customers are actually using it, and we've partnered with Flink. And we expect to GA this next year in Q1. Yeah. We're excited about it. Li ke, if you think it's a subscription offering, it's like so it's not like necessarily numbers are going next year. It's just like it's going to ramp up with adoption. Is that, like, the right way to think about it? That's, that's right. Anytime you have these, applications or infrastructure software products, right, there's a clear time to ramp that it takes. And this basically means that you've got to build some applications. Yeah, yeah. Our expectation is it's going to be a rough and tough ramp of about six months, purely because the dynamics that you called out, right? So, we're going to see from Flink in towards the end of 2024. Yeah. However, the real monetization will actually happen in 2025. T hen the—how big is that Flink market? I mean, like, when you kind of bought the company, you kind of put, you have to put the case together for the board, et cetera. Like, how big is that Flink adjacency? Yeah. I mean, it's interesting because when we were looking at the Immerok acquisition, the Flink open source community is really large. Mm. T wo other observations that we had was there was an overlap between Flink and community. Yeah. There was also an overlap within our customer base between Flink and, you know, Apache Kafka. There's obviously a decent amount of overlap, and I touched on it. Flink is starting to be a standard for stream processing. Even today, probably there is more spend happening in stream processing. Yeah. Than streaming itself. Oh, wow! T hat's a real opportunity for us. And obviously, it matters how you take advantage of the opportunity. I keep saying that, and our Flink product will be one of the first commercially available products out there, which is going to be truly cloud native, it's going to be complete, and it's also gonna be everywhere. Yeah. So yeah. Interesting. Yeah. Shifting gears a little bit, on the earnings call, you talked a little bit about the changing of the incentivization for the sales force towards more like a consumption model. A lot of people, I think, misunderstood it as something that you're changing, like your revenue model or something. Can you speak to what you actually want to do here, how that fits in? Yeah. That's a good question, and there are probably different ways I could answer it, but I'll start off with the why. Mm. When you look at the current macro environment, how our customers want to consume our product is they want to consume our product, and they want to commit to the level of their consumption. Yeah. Don't want to commit way ahead of time. So let's do that part. Now, when you compare that with how are we incentivizing our salespeople- Mm. We're incentivizing our sales to sell the largest ACV deal possible, and that is basically driving an inherent friction in the go-to-market model. Yeah. T hat's the why. W hat are we doing? We're doing a couple of things. First of all, I want to call out that this is not a, this is not a business model transformation. This is a go-to-market change, primarily on the incentive structure side. Yeah. That also has some operational implications that I'll talk about. What we are doing is, last year we had about 15% of our sales incentive structure for our salespeople is for cloud. Mm. We are moving to a complete 100% incentive structure for cloud. Yeah. All your compensation, 100% of your variable compensation will be driven by cloud consumption and cloud use. Oh, wow! That's the change we're making. Yeah, yeah. Another thing I want to call out is the changes are not happening in Q4. They're happening January of 2024. Yeah. How we end the year will be on the old comp plan and old model. Yeah, yeah. The last piece is the Confluent Platform business. There are absolutely no changes to that. That model, what we have this year, will be the exact same thing for next year as well. Yeah, on the cloud side. Yeah, so you're removing friction before the... [inaudible] Yeah, yeah. Right. Okay, yeah. I mean, and that, I mean, I've seen other vendors, like, I think MongoDB before. The one thing that is always issue there or that comes up, like a sales guy, you know, like sales guys are sales guys, they want the ACV, they want to be checked. How do you, like... How do you make them kind of whole or in terms of, you know, this model versus, like, the old model? A nytime you go through a change like this, obviously you need to make sure that you're running the right focus groups, you're doing your outcome analysis. Yeah. I can tell you, a vast majority of the field is very excited about the change. Yeah. We also looked at outside and some of the companies that you called out. Most recently, MongoDB went through the change, and it's been, it's been successful because ultimately, Raimo, when you think about it, you think first principles. What are the drivers of consumption? In my mind, there are three drivers of consumption. Number one, you have your existing use cases, and there's more volume going to existing use cases. Mm. Number two, it's all about the net new workloads, net new use cases. That, candidly, is the larger driver. And for us, the third driver is our ability to sell different components of our data streaming platform, be the connectors, governance, and stream processing. So what we are doing is we're focusing time on what matters the most to drive consumption- Yeah. -which is net new use cases, selling components. Yeah. T hat's why, while we include into our guidance and taking care, anytime you go through a change like this, there is an adjustment risk. We've included or rather, taken into account that adjustment risk for 2024, but next year, we feel that it's gonna be a tailwind for our business. Yeah. So and then you say, Sorry, in practical terms. So, and, you know, it's your term, how to do that. So adjustment is basically, okay, so this is what I think I'm selling, but, like, I'm taking a discount because, you know, it might, you know, there might be some disruption or something, and so there's a new number. That's kind of the way to do it. Yeah, I think it's, I'd say, multiple things. Yeah. It's about making sure that when you're baking in any kind of, you know, if there is any kind of question, we are thinking through that as well. Yeah. Although I said the vast majority of our sales force and go-to-market team is excited about it, there's probably gonna be a small number that might bleed out, so we need to take care of that, right? Yeah. Yeah. You need to obviously take care of, operationally, I'll say there are a bunch of changes. I mentioned earlier, the definition of a pipeline in today's world is CV dollars. Yeah. The definition of a pipeline in 2024 is going to be for the cloud business, is going to be net new workloads. Yeah, yeah. So those are the adjustments we just need to go through, as a company. But again, this is something which is 100% our control. Yeah, yeah, yeah. The fact pattern of some of the other incumbent players doing it has been very positive. Yeah. We feel confident with respect to flawlessly executing against it. T he next one is like, last couple of minutes, I wanted to talk about margin. If you think about the, like, you kind of went dramatically quicker towards one of the breakeven scenario. Like, how did you achieve it and the risk of them hearing from people? It's like, look, if you do that, that kind of quick move very quickly, like how does it impact kind of future growth opportunities? So can you maybe speak to that? Absolutely. The last seven quarters as a public company, we've shown 35+ points of margin improvement. And, you actually cannot do that if you don't have a company-wide philosophy. And our philosophy has been pretty clear. We want to allocate resources to drive efficient and growth, and you do that by having this maniacal focus on unit economics, and you do that by having a maniacal focus on ROI-based investing. Mm. That's been our focus. Specifically, we've obviously got leverage in our go-to-market teams. We've seen leverage in, you know, how our cloud business has become more efficient over time, and these are probably the bigger drivers over the last seven quarters, and will probably be the leading drivers as we look ahead from an overall efficiency perspective. Yeah. To your question around growth, anytime you're going through an annual planning cycle or a resource allocation cycle, it's never about the next 12 months. Mm. It's all about the next three years. I'll give you some proof points. In 2024, you, you heard us talking about technology unlocks that are gonna happen. Mm. Our Flink and GA product in Q1, networking unlocks, FedRAMP. These are all investments we've actually made in prior years. Yeah. Yeah. You absolutely have to think ahead, not only from an R&D perspective, but also from a go-to-market perspective with respect to how you're allocating your resources. Yeah. To drive the durable and efficient growth. I f you think about it, like the, the evolution from here, like we had to, you know, that was kind of a heavy lift. Like, I haven't really seen a lot of companies be able to kind of turn so quickly on. Like, what do you think it's going to be going forward, or how do you think about this going forward? Like, and not next year, like, you know, we talked about it like more like what's the key things that we kind of expect going forward for you guys? Yeah. For next year, provided early color. Yeah, exactly. We're going to be margin neutral for the full year, which if you compare guidance to guidance, it's about a nine-point improvement. Mm. We said that our op margin and cash flow will probably support. Yeah. Over the medium term, we want to get our op margin between 5%-10% and long term, north of 25%. Yeah, yeah. We'll be on a journey to get there. We also don't want to lose sight of the opportunity that's ahead of us with respect to the large $60 billion TAM. So it's a balance, and what's in my control is the rate and pace of investments, and the rate and pace of investments will always depend on how we are doing, balancing growth and profitability. Yeah. Hey, Ron, we're 40-second, so I give you that back. Awesome. Thanks. I really enjoyed our conversation. Thank you. Thank you very much. Thank you. Good to have you on again. Thank you.