Summary
Confluent opened fiscal 2023 with first quarter revenue of $174.3 million, up 38.2% from $126.1 million in the prior-year quarter. Cloud carried the growth. Confluent Cloud revenue rose 89% year over year and reached 42% of total revenue, up from 31% a year earlier. That mix shift matters because the cloud business runs at a lower gross margin than the self-managed platform. Contracted backlog also built up. Remaining performance obligations of $742.6 million were up 34.7% from $551.1 million, and deferred revenue of $324.6 million was up 22.2%. Customer counts followed the same path. Confluent served 1,075 customers with $100,000 or more in annual recurring revenue at quarter end, up 34%, and roughly 4,690 customers in total, up 14%. Dollar-based net retention was above 130% as of March 31, 2023.
Gross profit rose 44.5% to $116.2 million, and gross margin improved to 66.6% from 63.7%. Scale and infrastructure optimization did the work even as the cloud mix moved against the reported percentage. Below the gross line the picture darkens. Operating loss widened to $166.1 million from $111.5 million, and operating margin fell to -95.3% from -88.4%. Net loss widened to $152.6 million from $113.0 million. Diluted loss per share came to $0.52, versus $0.41 a year earlier. Two items explain much of the swing: restructuring and other related charges tied to January job cuts and a reduced real estate footprint, and a heavy stock-based compensation load. Adjusted for those and other costs, non-GAAP operating loss narrowed to $40.3 million from $51.7 million, and the non-GAAP operating margin improved to -23.1% from -41.0%. Non-GAAP net loss per share was $0.09 versus $0.19.
Cash is still flowing out. Net cash used in operating activities was $77.8 million, worse than the $55.0 million used in the prior-year quarter. Free cash flow, which is operating cash flow less capitalized internal-use software costs and capital expenditures, was -$82.9 million against -$58.4 million, with a free cash flow margin of -47.5% versus -46.3%. Capital expenditures fell to $0.5 million from $0.9 million.
Guidance points to more of the same shape: growth at scale, with losses narrowing on an adjusted basis. For the second quarter of fiscal 2023, management targets a non-GAAP operating margin of about -16% and a non-GAAP net loss per share between $0.08 and $0.06. For the full fiscal year 2023, the outlook is a non-GAAP operating margin between -14% and -13% and a non-GAAP net loss per share of $0.20 to $0.14. The company also targets non-GAAP operating margin breakeven as it exits the fourth quarter of fiscal 2023. It does not reconcile forward-looking non-GAAP guidance to GAAP, citing the unpredictability of stock-based compensation and payroll taxes on employee stock transactions.
The macro backdrop is the main risk. Management points to longer sales cycles and more scrutiny on IT budgets, and lists higher inflation, higher interest rates, bank failures and related uncertainty, currency volatility, and geopolitical tension among the pressures it faces. Competition includes open source alternatives to the paid platform, and the business leans on third-party cloud infrastructure to host Confluent Cloud. One more watch item is the change to how the company calculates annual recurring revenue for Confluent Cloud. The new method uses actual consumption rather than contractual commitments and was applied retroactively. It should lift the $100,000-plus customer count, but it also introduces more volatility into ARR and the net retention rate as consumption patterns shift.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $174.3M | $168.7M | +3.3% | $126.1M | +38.2% |
| Gross profit | $116.2M | $114.7M | +1.3% | $80.4M | +44.5% |
| Gross margin | 66.6% | 68.0% | -1.4 pp | 63.7% | +2.9 pp |
| Research & development | $84.9M | $71.8M | +18.2% | $57.7M | +47.2% |
| Sales & marketing | $128.6M | $122.7M | +4.8% | $106.7M | +20.5% |
| General & administrative | $35.4M | $35.2M | +0.4% | $27.5M | +28.7% |
| Total operating expenses | $282.3M | $229.7M | +22.9% | $191.8M | +47.1% |
| Operating income (loss) | -$166.1M | -$115.0M | -44.4% | -$111.5M | -49.0% |
| Operating margin | -95.3% | -68.2% | -27.1 pp | -88.4% | -6.9 pp |
| Net income (loss) | -$152.6M | -$105.9M | -44.1% | -$113.0M | -35.0% |
| Net margin | -87.5% | -62.8% | -24.7 pp | -89.6% | +2.0 pp |
| Diluted EPS | -$0.52 | -$0.38 | -$0.14 | — | — |
| Customers | 4,120 | — | — | 4,120 | ±0.0% |
| Net retention rate | 130.0% | 130.0% | ±0.0 pp | 130.0% | ±0.0 pp |
Risks
Macroeconomic uncertainty, including inflation, rising interest rates, bank failures, and the Russia-Ukraine conflict, has caused longer sales cycles for new customers and expansions and increased scrutiny on IT spending. MD&A states these dynamics have impacted and may continue to impact revenue growth and results of operations.
The company has experienced longer sales cycles, reduced contract sizes, and greater scrutiny on customer IT budgets due to macroeconomic and geopolitical conditions. These customer dynamics may persist even if macroeconomic conditions improve and can delay revenue recognition.
The January 2023 Restructuring Plan, including a workforce reduction and real estate footprint adjustment, may not deliver targeted cost savings and could lead to employee attrition, lower morale, diversion of management attention, and delays in meeting growth targets. Q1 2023 restructuring and other related charges were $33.4 million.
Confluent Cloud revenue mix shift may pressure gross margins because Confluent Cloud has historically had a lower average price and lower gross margin than Confluent Platform. MD&A notes subscription gross margin increased from economies of scale but was offset by a change in revenue mix toward Confluent Cloud, and Confluent Cloud represented 42% of total revenue for Q1 2023 versus 31% for Q1 2022.
Public cloud providers such as AWS, Azure, and GCP are both hosts and competitors, and they may embed competing data-streaming products, bundle offerings, provide unfavorable pricing, or use their cloud control to disadvantage Confluent. Open source Apache Kafka alternatives also lower barriers to entry and can reduce demand.
The company has a history of operating losses and negative operating cash flow. For Q1 2023, operating loss widened to $166.1 million from $111.5 million, net loss widened to $152.6 million from $113.0 million, and operating cash flow was negative $77.8 million, with an accumulated deficit of $1,354.0 million as of March 31, 2023.
The risk factors state that proprietary data and information, including source code, could be and has in the past been exfiltrated from security incidents. Reliance on third parties and remote work arrangements further expand the attack surface and may increase the risk of material security breaches.
Commencing in Q1 2023, Confluent changed its ARR methodology for Confluent Cloud to annualize actual consumption from the last three months, which also impacts NRR and customers with $100,000 or greater in ARR. This change may increase volatility and make period-over-period comparisons less indicative of long-term performance.
SaaS KPIs
All quarters →Free Cash Flow Margin
Non-GAAP Operating Margin
Total Customers
Customers with $100,000 or Greater in ARR
Confluent Cloud Revenue
Dollar-Based Net Retention Rate (NRR)
Free Cash Flow
Remaining Performance Obligations (RPO)
Summary, forecast, risks and KPIs are extracted from Confluent, Inc.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.