Summary
Confluent reported fiscal 2023 third quarter revenue of $200.2 million, up 31.9% from $151.7 million in the prior-year quarter. Year-to-date revenue was $563.8 million, up 35.1% from $417.3 million. Gross profit rose 45.7% to $143.6 million, and gross margin reached 71.8%, up 6.8 percentage points from 65.0% a year earlier. Subscription gross margin benefited from infrastructure efficiency, while the mix shift toward Confluent Cloud, which carries a lower gross margin, pushed the other way. Confluent Cloud revenue was $92 million, up 61% year over year, and accounted for 46% of total revenue in the quarter, up from 38% a year earlier.
GAAP profitability improved in the quarter even as the year-to-date picture stayed ugly. The operating loss was $108.6 million, narrower than the $118.9 million loss a year earlier, and operating margin improved to -54.3% from -78.4%. Net loss was $92.7 million versus $116.0 million, and diluted loss per share was -$0.30 compared with -$0.41. Through the first nine months, the operating loss widened to $394.1 million and the net loss widened to $348.7 million. Diluted loss per share for the nine months was -$1.17, better than -$1.25. Excluding stock-based compensation and other items, non-GAAP operating margin was -5.5% and non-GAAP net income per share was $0.02, the first positive quarter on that measure.
Cash flow and backlog gave a mixed read. Operating cash flow was -$9.1 million for the quarter, up from -$41.8 million a year earlier. For the nine months, operating cash flow was -$115.9 million, up from -$130.3 million. Free cash flow, a non-GAAP measure, was -$13.1 million versus -$45.6 million. Capital expenditures were $0.4 million in the quarter, down 65.2%. Remaining performance obligations rose 24.2% to $824.1 million, and deferred revenue rose 11.7% to $323.8 million. Management cautioned that RPO growth slowed as average deal sizes and average contract duration declined, with customers favoring consumption over large upfront commitments. It also reported reduced Confluent Cloud consumption at a few large enterprise customers and expects a bigger hit to consumption growth rates in coming quarters. Customers spending $100,000 or more in annual recurring revenue reached 1,185, up 25%, and total customers were roughly 4,910, up 16%. Dollar-based net retention was just under 130%.
Guidance points to slower growth in the fourth quarter. Confluent guided fourth quarter non-GAAP operating margin of 0% to 1% and non-GAAP net income per share of $0.05. For the full fiscal year 2023, the outlook is non-GAAP operating margin of -9% and non-GAAP net loss per share between $0.01 and $0.00. The company raised its fourth quarter non-GAAP operating margin guidance.
The risk list is long and mostly macro. Confluent cites longer sales cycles, reduced IT budgets, higher interest rates, bank failures, geopolitical conflicts, and potential U.S. federal government shutdowns. It also points to misalignment between its sales strategy and the consumption-first preferences of customers, and it is reorienting its go-to-market model around consumption, which will raise sales and marketing expense in coming quarters as consumption-based commissions are recognized upfront. Reliance on third-party cloud infrastructure, cybersecurity incidents, and competition round out the named risks. A January 2023 workforce reduction was part of the effort to streamline operating expenses.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $200.2M | $189.3M | +5.8% | $151.7M | +31.9% |
| Gross profit | $143.6M | $131.4M | +9.3% | $98.6M | +45.7% |
| Gross margin | 71.8% | 69.4% | +2.3 pp | 65.0% | +6.8 pp |
| Research & development | $91.2M | $85.7M | +6.5% | $70.1M | +30.2% |
| Sales & marketing | $128.6M | $127.8M | +0.7% | $114.3M | +12.5% |
| General & administrative | $31.9M | $36.3M | -12.3% | $33.0M | -3.5% |
| Total operating expenses | $252.3M | $250.7M | +0.6% | $217.5M | +16.0% |
| Operating income (loss) | -$108.6M | -$119.4M | +9.0% | -$118.9M | +8.6% |
| Operating margin | -54.3% | -63.1% | +8.8 pp | -78.4% | +24.1 pp |
| Net income (loss) | -$92.7M | -$103.4M | +10.4% | -$116.0M | +20.1% |
| Net margin | -46.3% | -54.6% | +8.4 pp | -76.5% | +30.2 pp |
| Diluted EPS | -$0.30 | -$0.35 | +$0.05 | -$0.41 | +$0.11 |
| Customers | 4,240 | 4,120 | +2.9% | 4,240 | ±0.0% |
| Net retention rate | 130.0% | 130.0% | ±0.0 pp | 130.0% | ±0.0 pp |
Risks
Macroeconomic and geopolitical uncertainty, including inflation, higher interest rates, bank failures, and conflicts in Ukraine and Israel and the Gaza Strip, has caused longer sales cycles, reduced IT budgets, and slower customer consumption expansion. MD&A states Q3 2023 saw reduced consumption from a few large enterprise customers and expects a greater negative impact on consumption growth in coming quarters.
The planned shift to a consumption-oriented sales model for Confluent Cloud creates execution and near-term revenue risk. MD&A notes customers are moving away from large upfront commitments toward consumption and smaller commitments, with reduced RPO growth as average deal sizes and contract duration declined, and says this misalignment has hurt subscription revenue.
AWS, Azure, and GCP host Confluent Cloud and are also actual or potential competitors; they could embed competing capabilities, bundle products, offer unfavorable pricing, or exclude Confluent. Confluent Cloud revenue represented 46% of total revenue in Q3 2023 versus 38% in Q3 2022, increasing exposure.
RPO, ARR, and NRR may fluctuate due to consumption volatility and the ARR methodology change, making period comparisons less indicative. MD&A reports reduced RPO growth in Q3 2023 as average deal sizes and contract duration declined, and expects increased volatility in NRR as Confluent Cloud becomes a larger part of revenue; RPO was $824.1 million as of September 30, 2023, up 24.2% versus the prior-year quarter.
The filing states that proprietary data and information, including source code, could be, and has in the past been, exfiltrated if security is breached. A compromise of confidentiality, integrity, or availability of IT systems could harm reputation, reduce demand, and create significant liabilities.
Substantially all revenue comes from the data-in-motion offering, and Confluent Platform still contributed 53% of subscription revenue for the nine months ended September 30, 2023, down from 62% in the prior-year period. Confluent Cloud has lower average prices and lower gross margins than Confluent Platform, so continued mix shift could pressure margins.
Apache Kafka is open source with few technological barriers to entry, so competitors or customers can build data-in-motion alternatives or use free-to-use versions, reducing demand. Customers may also develop similar capabilities in-house rather than purchase Confluent.
The January 2023 Restructuring Plan, including workforce reduction and real estate footprint changes, may not achieve targeted operating cost and margin benefits. Risks include employee attrition beyond the intended reduction, lower morale, management distraction, and failure or delay in meeting operational and growth targets; restructuring and other related charges were $34.9 million for the nine months ended September 30, 2023.
The shift to a consumption-oriented sales model may cause attrition among sales personnel and require higher upfront compensation costs. MD&A expects a greater increase in sales and marketing expenses in coming quarters from consumption-based sales commissions, and failure to improve sales productivity could harm growth.
Failure to obtain FedRAMP authorization for Confluent Cloud could prevent sales to certain federal, public sector, and private sector customers that require certification. Government sales also face budget cycles, shutdown risk, compliance costs, and unfavorable contract terms.
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 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.