Summary
Confluent reported third quarter revenue of $151.7 million, up 47.9% from the prior-year quarter. For the nine months ended September 30, 2022, revenue was $417.3 million, up 55.7%. Remaining performance obligations at quarter end were $663.5 million, up 72.3% year over year, and deferred revenue was $289.9 million, up 43.4%. The company had approximately 4,240 customers, up 40% from 3,020 a year earlier. It counted 921 customers with $100,000 or greater in annual recurring revenue, up 39%, and reported dollar-based net retention above 130% for the sixth consecutive quarter. About 37% of total revenue came from outside the United States. The mix continued to shift toward the cloud-native offering, which took a larger share of subscription revenue than a year ago. Management attributed the growth to the need for real-time data and the differentiation of its platform.
Profitability remains a challenge. Gross profit was $98.6 million, up 51.0%, and gross margin rose to 65.0% from 63.6%. But operating loss widened to $118.9 million from $94.8 million, even as operating margin improved to negative 78.4% from negative 92.4%. Net loss widened to $116.0 million from $95.7 million. Diluted EPS was negative $0.41, compared with negative $0.37. On a non-GAAP basis, operating loss narrowed to $42.1 million from $42.6 million, and non-GAAP operating margin improved to negative 27.8% from negative 41.6%. Non-GAAP net loss per share was negative $0.13 versus negative $0.17. The large gap between GAAP and non-GAAP results reflects stock-based compensation and related payroll tax expenses that are excluded from the non-GAAP measures.
For the first nine months of 2022, gross margin was 64.4%, down 1.6 percentage points from 66.0%. Operating margin improved to negative 83.3% from negative 84.3%. Operating loss widened to $347.7 million from $225.9 million. Net loss widened to $346.7 million from $228.4 million. Diluted EPS for the nine months was negative $1.25, compared with negative $1.40.
Cash flow deteriorated. Operating cash flow was negative $41.8 million for the quarter, compared with negative $18.0 million a year earlier. For the nine months, operating cash flow was negative $130.3 million versus negative $81.2 million. Capital expenditures were $1.04 million in the quarter, up from $0.56 million. Free cash flow, a non-GAAP measure, was negative $45.6 million compared with negative $20.6 million. The company ended the quarter with $1,939.7 million in cash, cash equivalents, and marketable securities. It also carries $1.1 billion of 0% convertible senior notes due 2027. Accumulated deficit stood at $1,095.5 million, and management expects to continue incurring operating losses and negative cash flows from operations.
Management issued revenue guidance for both the fourth quarter of 2022 and the full fiscal year 2022, alongside a non-GAAP operating margin of roughly negative 28% for the quarter and roughly negative 32% for the full year. Non-GAAP net loss per share guidance is $0.16 to $0.14 for the fourth quarter and $0.65 to $0.63 for the full fiscal year. The outlook excludes stock-based compensation and related items because they are difficult to predict. Risks include macroeconomic uncertainty, inflationary conditions, recessionary risks, and exchange rate fluctuations that could cause customers to pull back on information technology spending, lengthen sales cycles, reduce contract sizes, or reduce consumption of Confluent Cloud. Customers could also choose open source alternatives. COVID-19 remains a factor. The fourth quarter is historically the strongest for new customer sales, renewals, and expansion, which could affect cash collections. The company also disclosed that it will cease to qualify as an emerging growth company effective December 31, 2022.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $151.7M | $139.4M | +8.8% | $102.6M | +47.9% |
| Gross profit | $98.6M | $89.9M | +9.6% | $65.3M | +51.0% |
| Gross margin | 65.0% | 64.5% | +0.5 pp | 63.6% | +1.3 pp |
| Research & development | $70.1M | $64.5M | +8.7% | $47.7M | +47.0% |
| Sales & marketing | $114.3M | $112.8M | +1.4% | $87.0M | +31.4% |
| General & administrative | $33.0M | $30.0M | +10.2% | $25.3M | +30.4% |
| Total operating expenses | $217.5M | $207.2M | +4.9% | $160.0M | +35.9% |
| Operating income (loss) | -$118.9M | -$117.3M | -1.4% | -$94.8M | -25.5% |
| Operating margin | -78.4% | -84.2% | +5.8 pp | -92.4% | +14.0 pp |
| Net income (loss) | -$116.0M | -$117.6M | +1.3% | -$95.7M | -21.3% |
| Net margin | -76.5% | -84.4% | +7.9 pp | -93.3% | +16.8 pp |
| Diluted EPS | -$0.41 | -$0.42 | +$0.01 | — | — |
| Customers | 4,240 | 4,120 | +2.9% | 3,020 | +40.4% |
| Net retention rate | 130.0% | 130.0% | ±0.0 pp | 130.0% | ±0.0 pp |
Risks
High inflation, recessionary or uncertain economic environments, and the Russia-Ukraine conflict may cause longer sales cycles, reduced contract sizes, and increased scrutiny on IT spending, particularly in non-U.S. markets. Confluent also has limited experience operating at current scale under these conditions.
Confluent competes with well-established public cloud providers such as AWS, Azure, and GCP that also host Confluent Cloud and may bundle competing products, offer unfavorable pricing, or exclude Confluent from opportunities. Open source Apache Kafka and in-house alternatives also create pricing and adoption pressure.
Confluent Cloud revenue grew 112% for FY2022 Q3 and 136% for the nine months ended September 30, 2022, but Cloud has historically had a lower average price and lower gross margin than Confluent Platform. Increasing Cloud mix could pressure gross margins; total gross margin decreased to 64.4% for the nine months ended September 30, 2022 from 66.0% in the prior-year period.
Confluent Cloud operates on public cloud infrastructure from third-party vendors that are also competitors; costs and gross margins are significantly influenced by prices negotiated with these providers. Increased Cloud usage may raise cloud infrastructure costs and negatively impact gross margins.
The business depends on existing customers renewing subscriptions and usage-based minimum commitments and expanding their use. Dollar-based NRR was over 130% as of September 30, 2022, but loss of large customers, downgrades, or reduced expansion could harm revenue.
Net loss widened to $116.0 million for FY2022 Q3 from $95.7 million in FY2021 Q3, and operating cash flow used $130.3 million for the nine months ended September 30, 2022 compared with $81.2 million used in the prior-year period. The company expects continued operating losses and negative cash flows and may need additional capital.
If Confluent or third parties it works with experience a security breach, proprietary data including source code could be exfiltrated, and this has happened in the past. Remote work and reliance on third-party vendors increase the risk of unauthorized access to customer and confidential information.
Failure to effectively develop and expand sales and marketing capabilities or improve sales productivity could harm the ability to expand the customer pipeline and base. Sales and marketing expenses increased 31% for FY2022 Q3 and 53% for the nine months ended September 30, 2022, and the company must accelerate sales force ramp time.
Historically, a higher percentage of new customer subscriptions and renewals occur in Q4, causing seasonality in sales, results of operations, and RPO. RPO may fluctuate due to timing of renewals, average contract terms, and dollar amount of customer contracts and is not necessarily indicative of future revenue growth.
Selling to heavily regulated industry verticals such as banking and financial services and to government entities increases regulatory scrutiny, compliance costs, and sales challenges. Failure to obtain FedRAMP certification for Confluent Cloud would prevent sales to certain Federal and public sector customers.
SaaS KPIs
All quarters →Free Cash Flow Margin
Non-GAAP Operating Margin
Total Customers
Customers with $100,000 or Greater in ARR
Dollar-Based Net Retention Rate (NRR)
Remaining Performance Obligations (RPO)
Summary, forecast, risks and KPIs are extracted from Confluent, Inc.'s SEC filings for Q3 FY2022 (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.