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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

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: 001-40526

 

CONFLUENT, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-1824387

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

899 W. Evelyn Avenue

Mountain View, California

94041

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 439-3207

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.00001 per share

 

CFLT

 

The Nasdaq Stock Market LLC

(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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 26, 2023, there were 211,915,403 shares of the registrant’s Class A common stock and 90,506,212 shares of the registrant's Class B common stock, each with a par value of $0.00001 per share, outstanding.

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I. Financial Information

 

 

ITEM 1. Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

3

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022

5

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022

7

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022

9

 

 

Notes to Condensed Consolidated Financial Statements

11

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

47

 

ITEM 4. Controls and Procedures

48

PART II. Other Information

 

 

ITEM 1. Legal Proceedings

49

 

ITEM 1A. Risk Factors

50

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

99

 

ITEM 3. Defaults Upon Senior Securities

99

 

ITEM 4. Mine Safety Disclosures

99

 

ITEM 5. Other Information

100

 

ITEM 6. Exhibits

101

Signatures

102

 

 


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:

 

our expectations regarding our revenue, revenue mix, expenses, and other results of operations;
our ability to acquire new customers and successfully retain existing customers;
our ability to increase consumption of our offering and expand features and functionalities;
our ability to achieve or sustain our margins and profitability;
the impact of, and our ability to operate our business and effectively manage our growth under evolving and uncertain macroeconomic conditions, such as high inflation and recessionary environments;
future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
the costs and success of our sales and marketing efforts and our ability to promote our brand;
our growth strategies;
the estimated addressable market opportunity;
our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
our ability to effectively manage our growth, including international expansion;
our ability to protect our intellectual property rights and any costs associated therewith;
the effects of the COVID-19 pandemic or other public health crises;
our ability to compete effectively with existing competitors and new market entrants; and
the growth rates of the markets in which we compete.

 

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


Table of Contents

 

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 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. This list may be updated from time to time. 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


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

Confluent, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

 

June 30, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

312,643

 

 

$

435,781

 

Marketable securities

 

1,534,912

 

 

 

1,491,044

 

Accounts receivable, net

 

188,705

 

 

 

178,188

 

Deferred contract acquisition costs

 

39,180

 

 

 

35,883

 

Prepaid expenses and other current assets

 

64,218

 

 

 

57,229

 

Total current assets

 

2,139,658

 

 

 

2,198,125

 

Property and equipment, net

 

43,599

 

 

 

29,089

 

Operating lease right-of-use assets

 

11,870

 

 

 

29,478

 

Goodwill and intangible assets, net

 

45,814

 

 

 

-

 

Deferred contract acquisition costs, non-current

 

67,533

 

 

 

68,401

 

Other assets, non-current

 

19,166

 

 

 

19,756

 

Total assets

$

2,327,640

 

 

$

2,344,849

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

2,459

 

 

$

21,439

 

Accrued expenses and other liabilities

 

112,495

 

 

 

105,331

 

Operating lease liabilities

 

7,618

 

 

 

7,375

 

Deferred revenue

 

300,786

 

 

 

290,185

 

Total current liabilities

 

423,358

 

 

 

424,330

 

Operating lease liabilities, non-current

 

21,394

 

 

 

25,136

 

Deferred revenue, non-current

 

27,187

 

 

 

32,644

 

Convertible senior notes, net

 

1,086,389

 

 

 

1,084,500

 

Other liabilities, non-current

 

7,926

 

 

 

8,762

 

Total liabilities

 

1,566,254

 

 

 

1,575,372

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

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Table of Contents

 

June 30, 2023

 

 

December 31, 2022

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022

 

-

 

 

 

-

 

Class A common stock, par value of $0.00001 per share; 1,000,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 210,903,270 and 172,483,134 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

2

 

 

 

2

 

Class B common stock, par value of $0.00001 per share; 500,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 90,774,951 and 116,901,046 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

1

 

 

 

1

 

Additional paid-in capital

 

2,228,574

 

 

 

1,980,335

 

Accumulated other comprehensive loss

 

(9,806

)

 

 

(9,456

)

Accumulated deficit

 

(1,457,385

)

 

 

(1,201,405

)

Total stockholders’ equity

 

761,386

 

 

 

769,477

 

Total liabilities and stockholders’ equity

$

2,327,640

 

 

$

2,344,849

 

 

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Subscription

$

176,488

 

 

$

127,018

 

 

$

337,055

 

 

$

240,938

 

Services

 

12,797

 

 

 

12,389

 

 

 

26,532

 

 

 

24,608

 

Total revenue

 

189,285

 

 

 

139,407

 

 

 

363,587

 

 

 

265,546

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

44,188

 

 

 

35,608

 

 

 

87,093

 

 

 

69,211

 

Services

 

13,732

 

 

 

13,901

 

 

 

28,971

 

 

 

26,075

 

Total cost of revenue

 

57,920

 

 

 

49,509

 

 

 

116,064

 

 

 

95,286

 

Gross profit

 

131,365

 

 

 

89,898

 

 

 

247,523

 

 

 

170,260

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

85,677

 

 

 

64,472

 

 

 

170,567

 

 

 

122,133

 

Sales and marketing

 

127,770

 

 

 

112,754

 

 

 

256,394

 

 

 

219,456

 

General and administrative

 

36,343

 

 

 

29,979

 

 

 

71,698

 

 

 

57,460

 

Restructuring and other related charges

 

943

 

 

 

-

 

 

 

34,325

 

 

 

-

 

Total operating expenses

 

250,733

 

 

 

207,205

 

 

 

532,984

 

 

 

399,049

 

Operating loss

 

(119,368

)

 

 

(117,307

)

 

 

(285,461

)

 

 

(228,789

)

Other income, net

 

17,610

 

 

 

1,186

 

 

 

32,795

 

 

 

370

 

Loss before income taxes

 

(101,758

)

 

 

(116,121

)

 

 

(252,666

)

 

 

(228,419

)

Provision for income taxes

 

1,667

 

 

 

1,510

 

 

 

3,314

 

 

 

2,199

 

Net loss

$

(103,425

)

 

$

(117,631

)

 

$

(255,980

)

 

$

(230,618

)

Net loss per share, basic and diluted

$

(0.35

)

 

$

(0.42

)

 

$

(0.87

)

 

$

(0.84

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

297,827,200

 

 

 

278,268,980

 

 

 

294,862,197

 

 

 

275,593,362

 

 

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

Confluent, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net loss

$

(103,425

)

 

$

(117,631

)

 

$

(255,980

)

 

$

(230,618

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on marketable securities

 

(5,574

)

 

 

(4,005

)

 

 

(1,415

)

 

 

(8,717

)

Net unrealized gain on derivative instruments

 

222

 

 

 

-

 

 

 

1,065

 

 

 

-

 

Other comprehensive loss, net of tax

 

(5,352

)

 

 

(4,005

)

 

 

(350

)

 

 

(8,717

)

Total comprehensive loss

$

(108,777

)

 

$

(121,636

)

 

$

(256,330

)

 

$

(239,335

)

 

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

Confluent, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

Three Months Ended June 30, 2023

 

 

Class A and Class B
Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances as of April 1, 2023

 

295,378,610

 

 

$

3

 

 

$

2,103,262

 

 

$

(4,454

)

 

$

(1,353,960

)

 

$

744,851

 

Vesting of early exercised options

 

-

 

 

 

-

 

 

 

629

 

 

 

-

 

 

 

-

 

 

 

629

 

Issuance of common stock upon exercise of vested options

 

3,645,882

 

 

 

-

 

 

 

26,714

 

 

 

-

 

 

 

-

 

 

 

26,714

 

Vesting of restricted stock units

 

2,653,729

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

97,969

 

 

 

-

 

 

 

-

 

 

 

97,969

 

Other comprehensive loss, net of tax

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,352

)

 

 

-

 

 

 

(5,352

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(103,425

)

 

 

(103,425

)

Balances as of June 30, 2023

 

301,678,221

 

 

$

3

 

 

$

2,228,574

 

 

$

(9,806

)

 

$

(1,457,385

)

 

$

761,386

 

 

 

Three Months Ended June 30, 2022

 

 

Class A and Class B
Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances as of April 1, 2022

 

278,036,762

 

 

$

3

 

 

$

1,703,449

 

 

$

(5,542

)

 

$

(861,841

)

 

$

836,069

 

Issuance of common stock upon early exercise of unvested options

 

14,584

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Repurchases of unvested options

 

(121,867

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Vesting of early exercised options

 

-

 

 

 

-

 

 

 

3,093

 

 

 

-

 

 

 

-

 

 

 

3,093

 

Issuance of common stock upon exercise of vested options

 

2,610,173

 

 

 

-

 

 

 

8,634

 

 

 

-

 

 

 

-

 

 

 

8,634

 

Vesting of restricted stock units

 

873,994

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

70,464

 

 

 

-

 

 

 

-

 

 

 

70,464

 

Other comprehensive loss, net of tax

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,005

)

 

 

-

 

 

 

(4,005

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(117,631

)

 

 

(117,631

)

Balances as of June 30, 2022

 

281,413,646

 

 

$

3

 

 

$

1,785,640

 

 

$

(9,547

)

 

$

(979,472

)

 

$

796,624

 

 

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Table of Contents

 

Six Months Ended June 30, 2023

 

 

Class A and Class B
Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances as of January 1, 2023

 

289,384,180

 

 

$

3

 

 

$

1,980,335

 

 

$

(9,456

)

 

$

(1,201,405

)

 

$

769,477

 

Repurchases of unvested options

 

(30,828

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Vesting of early exercised options

 

-

 

 

 

-

 

 

 

1,904

 

 

 

-

 

 

 

-

 

 

 

1,904

 

Issuance of common stock upon exercise of vested options

 

7,241,647

 

 

 

-

 

 

 

47,983

 

 

 

-

 

 

 

-

 

 

 

47,983

 

Vesting of restricted stock units

 

4,368,636

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock under employee stock purchase plan

 

714,586

 

 

 

-

 

 

 

17,172

 

 

 

-

 

 

 

-

 

 

 

17,172

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

181,180

 

 

 

-

 

 

 

-

 

 

 

181,180

 

Other comprehensive loss, net of tax

 

-

 

 

 

-

 

 

 

-

 

 

 

(350

)

 

 

-

 

 

 

(350

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(255,980

)

 

 

(