Summary
Confluent closed fiscal 2021's third quarter with total revenue of $102.6 million, up 66.8% from $61.5 million in the prior-year quarter. It was the first quarter the company cleared $100 million. Year to date, revenue reached $267.9 million, up 61.2%. Confluent Cloud carried the growth: cloud revenue of $26.8 million rose 245% year over year, and cloud made up 29% of subscription revenue in the quarter versus 14% a year earlier. The mix shift toward the managed service is now visible in the reported numbers, and management framed it as evidence that enterprises are moving data infrastructure to the public cloud.
Profitability moved in two directions at once. Gross profit rose 53.8% to $65.3 million, but gross margin slipped 5.4 percentage points to 63.6% from 69.0%, as cloud infrastructure and personnel costs grew faster than revenue. The operating loss narrowed to $94.8 million from $140.0 million, and the net loss narrowed to $95.7 million from $138.1 million. Diluted loss per share was $0.37 for the quarter and $1.40 for the first nine months.
The improvement owes a lot to accounting. The prior-year quarter carried $111.9 million of stock-based compensation tied to a tender offer and secondary sales of common and convertible founder stock. On a non-GAAP basis, which excludes that charge, the operating loss actually widened to $42.6 million from $19.7 million. Non-GAAP net loss per share was $0.17, compared with $0.18 a year earlier.
Cash is the soft spot. Operating cash flow was negative $18.0 million for the quarter, down from negative $9.2 million a year earlier, and negative $81.2 million for the first nine months. Free cash flow, which subtracts capitalized internal-use software costs and capital expenditures from operating cash flow, was negative $20.6 million for the quarter. Capital expenditures were $0.6 million.
Forward-looking demand signals look firmer. Deferred revenue stood at $202.1 million on September 30, 2021. Remaining performance obligations were $385.0 million, up 75% from $220.2 million a year earlier. The company counted 664 customers with at least $100,000 in annual recurring revenue, up 48% and up from 449 a year earlier, plus 3,020 total customers versus 1,730. Dollar-based net retention exceeded 130% again. Customers outside the United States supplied 35% of quarterly revenue.
Guidance for the fourth quarter of fiscal 2021 calls for a non-GAAP operating loss of $57 million to $59 million and a non-GAAP net loss per share of $0.21 to $0.23, with total revenue guided higher again. For the full fiscal year 2021, management pointed to a non-GAAP operating loss of $168 million to $170 million and a non-GAAP net loss per share of $0.90 to $0.92. The company does not reconcile those forward-looking non-GAAP figures to GAAP, citing the unpredictability of stock-based compensation and payroll taxes on employee stock transactions.
Several risks sit behind the growth. COVID-19 has already lengthened some sales cycles and delayed professional services delivery, and the company relies on third-party cloud infrastructure to host Confluent Cloud. Competition includes both commercial vendors and open source alternatives. Confluent also has a limited operating history, an accumulated deficit of $634.4 million as of September 30, 2021, and it expects to keep posting operating losses and negative operating cash flow. It ended the quarter with $1,030.9 million in cash, cash equivalents, and marketable securities, helped by $786.6 million in net proceeds from its June 2021 initial public offering. The lock-up agreements covering pre-IPO shares terminate at the open on November 8, 2021.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $102.6M | $88.3M | +16.1% | — | — |
| Gross profit | $65.3M | $58.3M | +11.9% | — | — |
| Gross margin | 63.6% | 66.0% | -2.4 pp | — | — |
| Research & development | $47.7M | $33.2M | +43.6% | — | — |
| Sales & marketing | $87.0M | $73.2M | +18.8% | — | — |
| General & administrative | $25.3M | $37.9M | -33.2% | — | — |
| Total operating expenses | $160.0M | $144.4M | +10.8% | — | — |
| Operating income (loss) | -$94.8M | -$86.0M | -10.1% | — | — |
| Operating margin | -92.4% | -97.4% | +5.0 pp | — | — |
| Net income (loss) | -$95.7M | -$88.2M | -8.5% | — | — |
| Net margin | -93.3% | -99.8% | +6.5 pp | — | — |
| Customers | 3,020 | 2,830 | +6.7% | — | — |
| Net retention rate | 130.0% | 130.0% | ±0.0 pp | — | — |
Risks
AWS, Microsoft Azure, and Google Cloud are both hosts of Confluent Cloud and primary actual and potential competitors. They could embed competing data streaming products, bundle offerings, provide unfavorable pricing, or exclude Confluent from opportunities.
Primary on-premise competition is internal IT teams using Apache Kafka, and open source alternatives have few technological barriers to entry. Customers may use free or in-house versions rather than pay for Confluent, which could reduce demand.
Total gross margin decreased to 63.6% in FY2021 Q3 from 69.0% in FY2020 Q3. MD&A attributes subscription margin decline partly to revenue mix shift and higher third-party cloud infrastructure costs as Confluent Cloud grows.
Confluent Cloud revenue increased 245% in the three months and 194% in the nine months ended September 30, 2021, but sales have historically had a lower average price than Confluent Platform. Failure to achieve profitable adoption or convert free trials and pay-as-you-go users to commitments could harm growth.
Sales and marketing expenses increased 99% in the three months and 85% in the nine months ended September 30, 2021. The company must improve sales productivity and ramp new hires, and the 2020 hiring pause may weigh on near- to medium-term growth.
Confluent Cloud runs on AWS, Azure, and GCP. Any failure to adapt, disruption, capacity limits, or unfavorable pricing from these providers could adversely affect the business, and costs and gross margins are significantly influenced by negotiated cloud prices.
In April 2021 Confluent was notified it was impacted by the Codecov Breach. Attackers obtained read-only access and copied private GitHub repositories containing source code and internal documents with customer references to overseas IP addresses, and the full impact may not be known for some time.
Net loss widened to $228.4 million for the nine months ended September 30, 2021 from $198.1 million in the prior-year period, and operating cash flow was negative $81.2 million versus negative $61.7 million. The company expects continued operating losses and negative cash flows.
COVID-19 and new variants have had, and may continue to have, an adverse impact. MD&A states results were not materially impacted in the quarter ended September 30, 2021 but reports delays in professional services and lengthening sales cycles for some prospective customers.
Confluent Platform contributed 75% of subscription revenue in the nine months ended September 30, 2021, down from 86% in the prior-year period. Loss of market acceptance or reduced renewals for this offering would harm results.
Sales to heavily regulated verticals and government entities require significant resources and certifications. Without FedRAMP certification for Confluent Cloud, it cannot sell to certain federal and public sector customers, and government contracts carry termination and audit risks.
Lock-up agreements lapse on November 8, 2021, making substantially all outstanding shares eligible for sale. Future sales or the perception that they will occur could depress the Class A common stock price.
Class B common stock has 10 votes per share and, as of September 30, 2021, Class B holders together held approximately 97.1% of voting power. This concentrated control limits other stockholders' ability to influence corporate matters.
SaaS KPIs
All quarters →Free Cash Flow Margin
Non-GAAP Operating Margin
Total Customers
Confluent Cloud Revenue
Free Cash Flow
Dollar-Based Net Retention Rate
Remaining Performance Obligations (RPO)
Non-GAAP Total Gross Margin
Total Revenue
Summary, forecast, risks and KPIs are extracted from Confluent, Inc.'s SEC filings for Q3 FY2021 (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.