Summary
Confluent reported fourth-quarter total revenue of $213.2 million, up 26.4% from the prior-year quarter. Fiscal 2023 revenue was $777.0 million, up 32.6%. Gross margin improved to 73.2% in the fourth quarter from 68.0%, a 5.2 percentage point gain. For the full year, gross margin was 70.4%, up 5.0 percentage points. The customer base reached about 4,960 at December 31, 2023, compared with 4,530 at December 31, 2022. Customers with $100,000 or greater in ARR totaled 1,229, up 21% year over year. Dollar-based net retention rate was slightly above 125% at December 31, 2023. Confluent Cloud represented 45% of total revenue for the year ended December 31, 2023, up from 36% in 2022 and 24% in 2021. The company said RPO is no longer a key business metric as it shifts to a consumption-oriented sales model.
GAAP operating loss was $84.7 million in the fourth quarter, up from a loss of $115.0 million in the prior-year quarter. GAAP net loss was $94.1 million, up from a loss of $105.9 million. Operating margin was negative 39.7%, up 28.5 percentage points. For fiscal 2023, GAAP operating loss was $478.8 million, down from a loss of $462.7 million in fiscal 2022. GAAP net loss was $442.7 million, up from a loss of $452.6 million. GAAP diluted EPS was -$1.47, up from -$1.62. Full-year operating margin was negative 61.6%, up 17.3 percentage points. Non-GAAP operating income was $11.2 million in the fourth quarter, compared with a non-GAAP operating loss of $36.3 million in the prior-year quarter. Non-GAAP operating margin was 5.3%, compared with negative 21.5%. For the full year, non-GAAP operating loss was $57.3 million, compared with $176.9 million, and non-GAAP operating margin was negative 7.4%, compared with negative 30.2%. The CFO said the company reached its first positive non-GAAP operating margin in the fourth quarter.
Operating cash flow was $12.2 million in the fourth quarter, up from negative $27.1 million in the prior-year quarter. For fiscal 2023, operating cash flow was negative $103.7 million, up from negative $157.3 million. Free cash flow was $6.8 million in the fourth quarter, compared with negative $30.9 million, and negative $124.3 million for the full year, compared with negative $171.8 million. Capital expenditures were $1.12 million in the fourth quarter, up from $1.01 million, and $2.83 million for fiscal 2023, down from $4.12 million. Deferred revenue was $353.0 million at December 31, 2023, up 9.4% from $322.8 million at December 31, 2022. Remaining performance obligations were $919.9 million, up 24.2% from $740.7 million. The company ended the year with a GAAP net loss but positive fourth-quarter operating cash flow and free cash flow.
For the first quarter of 2024, Confluent expects subscription revenue between $199 million and $200 million, a non-GAAP operating margin of approximately negative 4%, and non-GAAP net income per diluted share between $0.00 and $0.02. For the full fiscal year 2024, guidance calls for a non-GAAP operating margin of approximately 0% and non-GAAP net income per diluted share of approximately $0.17. Confluent is transitioning its financial outlook from total revenue to subscription revenue. It will continue to provide total revenue outlook for the first and second quarters of 2024 and fiscal year 2024 before moving to subscription revenue only beginning with the third quarter of 2024. Management said it is confident in achieving the 2024 revenue guidance and its first breakeven year for both non-GAAP operating margin and free cash flow margin. Risks include uncertain macroeconomic conditions, higher inflation, higher interest rates, geopolitical events, longer sales cycles, reduced IT budgets, slower customer consumption expansion, fewer new use cases, and increased scrutiny on IT spending. The company also noted that subscription revenue and RPO growth rates have been reduced by these factors, and that its shift to a consumption-oriented model could temper dollar-based net retention near term.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $213.2M | $200.2M | +6.5% | $168.7M | +26.4% |
| Gross profit | $156.1M | $143.6M | +8.7% | $114.7M | +36.1% |
| Gross margin | 73.2% | 71.8% | +1.5 pp | 68.0% | +5.2 pp |
| Research & development | $86.9M | $91.2M | -4.7% | $71.8M | +21.1% |
| Sales & marketing | $119.9M | $128.6M | -6.8% | $122.7M | -2.3% |
| General & administrative | $33.9M | $31.9M | +6.5% | $35.2M | -3.6% |
| Total operating expenses | $240.8M | $252.3M | -4.5% | $229.7M | +4.8% |
| Operating income (loss) | -$84.7M | -$108.6M | +22.0% | -$115.0M | +26.4% |
| Operating margin | -39.7% | -54.3% | +14.6 pp | -68.2% | +28.5 pp |
| Net income (loss) | -$94.1M | -$92.7M | -1.5% | -$105.9M | +11.1% |
| Net margin | -44.1% | -46.3% | +2.1 pp | -62.8% | +18.6 pp |
| Diluted EPS | -$0.31 | -$0.30 | -$0.01 | -$0.38 | +$0.07 |
| Net retention rate | 125.0% | 130.0% | -5.0 pp | 130.0% | -5.0 pp |
Risks
Macroeconomic uncertainty, inflation, higher interest rates, and geopolitical conflicts in Ukraine and the Middle East have caused longer sales cycles, reduced IT budgets, and slowdowns in customer consumption expansion. MD&A says these factors have reduced growth rates in subscription revenue and RPO.
The company has experienced longer sales cycles and increased scrutiny on IT spending from existing and potential customers, which can delay revenue and make forecasting difficult, particularly because a large portion of sales occurs toward the end of each quarter.
The planned shift to a consumption-oriented sales model for Confluent Cloud may cause near-term fluctuations, lower average prices than Confluent Platform, sales personnel attrition, and delays if customers do not expand commitments or ramp usage.
Confluent Cloud runs on AWS, Azure, and GCP, which are also competitors; these providers could bundle competing products, provide unfavorable pricing, or exclude Confluent from opportunities. Cloud infrastructure costs and gross margins are significantly influenced by negotiated prices with these providers.
Substantially all revenue comes from the data-in-motion offering, and Apache Kafka is open source with few barriers to entry; customers may use free or internally developed alternatives, reducing demand. Confluent Platform contributed 52% of subscription revenue in 2023 versus 61% in 2022.
Reduced consumption by, or the loss or expected loss of, customers has historically negatively impacted and may continue to negatively impact growth. Customers may prefer usage-based arrangements with smaller commitments, reducing visibility into revenue recognition.
The company and third parties process sensitive data, and the company has experienced cybersecurity incidents resulting in inadvertent disclosures of confidential information, including source code, due to authorized personnel actions. Remote work also increases phishing and state-sponsored attack risks.
The company must enable GenAI and AI-related use cases to expand adoption, but AI-driven changes to data infrastructure could reduce demand or shift competition in ways that are currently unforeseeable.
As Confluent Cloud grows, revenue mix shifts toward a lower gross margin offering with higher third-party cloud infrastructure costs. Confluent Cloud was 45% of total revenue in 2023 versus 36% in 2022, and MD&A says this mix can pressure gross margins.
NRR and customers with $100,000 or greater in ARR have fluctuated and may be volatile after the ARR methodology change to annualize last three months of Confluent Cloud consumption. NRR was slightly above 125% as of December 31, 2023, and MD&A expects it to be tempered by the consumption shift.
Failure to develop and expand sales and marketing capabilities or improve sales productivity could harm pipeline growth. The shift to a consumption-oriented model may cause sales personnel attrition, delays in sales cycles, and increased costs.
Sales to government entities require FedRAMP authorization and other compliance. Failure to obtain or maintain authorization could prevent selling Confluent Cloud to certain federal and public sector customers, and government shutdowns or budget cycles may reduce demand.
The company has operations and customers in Israel, and the armed conflict in Israel and the Gaza Strip has negatively impacted certain customers and their consumption of the offering. Continued or expanded conflict could further harm growth and results.
The dual class structure concentrates voting control with Class B holders, who held approximately 79.4% of voting power as of December 31, 2023, and the CEO controlled approximately 22.3% of voting power. This limits stockholder influence over 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
Subscription Revenue
Non-GAAP Gross Margin
Non-GAAP Operating Income
Total Revenue
Summary, forecast, risks and KPIs are extracted from Confluent, Inc.'s SEC filings for Q4 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.