Confluent Inc.
10/27/2025 | Press release | Distributed by Public on 10/27/2025 14:39
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year ended December 31, 2024 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission ("SEC") on February 18, 2025 (the "Annual Report"). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note About Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to "we," "us," "our," "our company," and "Confluent" refer to Confluent, Inc. and its consolidated subsidiaries. Unless otherwise indicated, references to our "common stock" include our Class A common stock and Class B common stock.
Overview
Confluent is pioneering the Data Streaming Platform category, setting data in motion to power the world's real-time operations and analytics. We have established a new category of data infrastructure and built a comprehensive platform that enables organizations to stream, connect, process, and govern data in motion across their enterprise. The Data Streaming Platform is designed to serve as the intelligent connective tissue linking all of the applications, systems, and data layers within the company into a single central nervous system of real-time streams of data. This Data Streaming Platform is emerging as one of the most strategic parts of the next-generation technology stack, enabling modern companies to serve their customers, improve their offerings, outpace their competition, and win in the digital-first and AI-powered world.
Confluent is designed to act as the nexus of real-time data, from every source, allowing it to stream across the organization and enabling applications to harness it to power real-time customer experiences and data-driven business operations. The Data Streaming Platform delivers four key capabilities, Stream, Connect, Process, and Govern, that reinforce each other to create a comprehensive platform for data in motion. Streaming is the foundation, enabling data to continuously move in real-time to power modern business operations and applications. As companies implement more and more data streams they must connect a growing number of systems, applications, and data sources with the ultimate goal of building a complete network that spans the entire technology stack of the company. Once the network of connected systems and applications begins to grow, companies increasingly need to process data in real-time in order to transform, clean, and augment the data as it moves from one system to another. Finally, as the scale and scope of streaming increases, companies need to govern these data assets to ensure they are discoverable, secure, compliant, and trustworthy as they power a growing number of critical applications within the company. As the adoption of Confluent's Data Streaming Platform grows within an organization, the network effects we generate create even more value to the organization as a whole. We believe that Confluent, over time, will become the central nervous system for modern digital enterprises, providing ubiquitous real-time connectivity and powering real-time applications across the enterprise.
We generate our revenue primarily from the sale of subscriptions to our Data Streaming Platform, designed to span across all environments. Confluent Cloud is a fully-managed, cloud-native software-as-a-service ("SaaS") offering available on all of the leading cloud providers. Confluent Platform is an enterprise-ready, self-managed software offering that can be deployed in our customers' on-premise, private cloud, and public cloud environments. WarpStream is a Bring Your Own Cloud ("BYOC") managed service offering where the raw data resides inside a customer's own cloud environment. All of these offerings can be leveraged both individually in their respective environments and collectively as a single unified Data Streaming Platform.
Confluent Cloud and WarpStream customers may purchase subscriptions either without a commitment contract on a month-to-month basis, which we refer to as pay-as-you-go, or under a usage-based commitment contract of at least one year in duration, in which customers commit to specified per-usage rates. Pay-as-you-go customers are billed, and revenue from them is recognized, based on usage. Customers with usage-based commitments are typically billed annually in advance or monthly in arrears, and we recognize revenue from such subscriptions based on usage by the customer. As a result, our revenue may fluctuate from period to period due to varying patterns of customer consumption. Confluent Platform customers receive access to our proprietary features and various tiers of customer support. Our subscriptions primarily have terms of one to three years and are generally billed annually in advance.
We are focused on the acquisition of new customers and expanding within our current customers. Our "consumption-oriented" go-to-market model benefits from our self-service motions driven by our cloud-native platform offerings, our widespread mindshare among developers through Apache Kafka®, Apache Flink®, and Apache Iceberg®, community downloads, and our enterprise sales force. We acquire new customers through seamless and frictionless self-service cloud adoption and free cloud trials, as well as community downloads. For example, after users get started with our free cloud trial, they can easily convert to become paying customers either online on a pay-as-you-go model or with a commitment contract. Once customers see the benefits of our platform for their initial use cases, we believe that they will expand into other use cases and lines of business, divisions, and geographies. Our deep technical expertise, coupled with our product capabilities and laser focus on customer outcomes, enable us to form strategic partnerships with our customers to guide and accelerate this journey. This expansion often generates a natural network effect in which the value of our Data Streaming Platform to a customer increases as more use cases are adopted, more users and teams are onboarded, more applications and systems are connected, and more data is added. We have experienced significant growth, with revenue of $298.5 million and $250.2 million for the three months ended September 30, 2025 and 2024, respectively, representing year-over-year growth of 19%, and revenue of $851.9 million and $702.4 million for the nine months ended September 30, 2025 and 2024, respectively, representing year-over-year growth of 21%.
Business and Macroeconomic Conditions
Our business and financial condition have been, and we believe will continue to be, impacted by adverse and uncertain macroeconomic conditions, including inflation, interest rates, fluctuations or volatility in capital markets or foreign currency exchange rates, the threat of new or increased tariffs, escalating trade tensions and changes in trade agreements, and geopolitical events around the world, such as the impact from recent U.S. tariff activity as well as ongoing conflicts between Russia and Ukraine and in the Middle East. We have experienced, and expect to continue to experience, negative impacts from these and other factors, including longer sales cycles, reduced IT budgets, slowdowns in customer consumption expansion and growth rates, including fewer new use cases adopted by customers, and generally increased scrutiny on IT spending from existing and potential customers. In addition, we have experienced and expect to continue to experience volatility in consumption from some of our larger enterprise customers, resulting in lower consumption from time to time, primarily due to continued customer focus on cloud cost optimization, as well as shifts in customers' data streaming strategies. We typically experience more consumption volatility during periods of increased customer scrutiny on IT spending. We cannot be certain how long these uncertain macroeconomic conditions, geopolitical events, and IT spending and consumption patterns, and their resulting effects on our industry, our financial results, our business strategy, and customers, will persist.
The full extent to which uncertain macroeconomic and geopolitical conditions and other factors and dynamics discussed above will directly or indirectly impact our business, results of operations, cash flows, and financial condition remains uncertain and cannot be accurately predicted. We will continue to monitor and evaluate the actual and potential impacts of general macroeconomic conditions and related factors on our business and operations.
Key Factors Affecting Our Performance
Developing Innovative, Market-Leading Offerings and Expanding Developer Mindshare
We are focused on delivering market-leading offerings. We believe it is critical for us to maintain our product leadership position and further increase the strength of our brand and reputation to drive revenue growth. We have made significant investments in our Data Streaming Platform to enable customers to stream, connect, process, and govern their data. For example, we significantly re-architected the technologies underlying data in motion, including open source Apache Kafka, with our purpose-built Kora engine, which powers Confluent Cloud to be a fully-managed cloud service. Additionally, our acquisition of immerok GmbH, an Apache Flink stream processing managed services company, enabled us to re-architect Flink as a cloud-native service on Confluent Cloud and release Confluent Platform for Apache Flink, while our Stream Governance suite establishes trust in real-time data movement and maintains stream quality, security, and regulatory compliance. We have also expanded to include support to materialize data streams as Apache Iceberg tables, which has rapidly become the open source standard for open table formats across numerous analytics compute engines. We expect our future growth to depend in large part on increased customer adoption and usage expansion of our Data Streaming Platform products. Customer adoption of our Data Streaming Platform products remains in early stages, and as a result, adoption and consumption trends for these products has been volatile. However, we believe we have a robust opportunity to help our customers understand and realize the benefits of our complete Data Streaming Platform, leading to increased adoption and consumption of these products over time. We intend to continue to invest efficiently in our engineering capabilities, including through acquisitions, and marketing activities to maintain our strong position within the developer community. Our results of operations may fluctuate as we make these investments to drive increased customer adoption and usage.
Increasing Adoption of Confluent Cloud
We believe our cloud-native Confluent Cloud offering continues to represent an important growth opportunity for our business. Organizations are increasingly looking for a fully-managed offering to seamlessly leverage data in motion across a variety of environments. In some cases, customers that have been self-managing deployments through Confluent Platform subsequently have become Confluent Cloud customers. We offer users a free cloud trial and a pay-as-you-go arrangement to encourage adoption and expansion via new use cases to increase usage over time. We will continue to leverage our cloud-native differentiation to drive our growth. Our Confluent Cloud revenue represented 54% and 52% of our total revenue for the three months ended September 30, 2025 and 2024, respectively, and 53% and 51% of our total revenue for the nine months ended September 30, 2025 and 2024, respectively. As we recognize revenue from Confluent Cloud based on usage, our revenue and results of operations have in the past fluctuated and may continue to fluctuate from period to period due to the usage-based nature of Confluent Cloud, and varying patterns of customer consumption and adoption trends, including due to impacts from macroeconomic uncertainty and related effects on customer IT spending, as described above. While we expect Confluent Cloud's contribution to our revenue to continue to increase over time, the rate of such increase may fluctuate over time.
Growing Our Customer Base
We are intensely focused on continuing to grow our customer base. We have invested and will continue to invest in our sales and marketing efforts, including pipeline generation and execution, and developer community outreach, which are critical to driving customer acquisition. We historically focused on large enterprise customers with significant expansion opportunities and built a go-to-market motion around this approach. As we grew our cloud offering and increasingly prioritized consumption over commitments, including by creating more self-serve opportunities and completing our shift to a consumption-oriented sales model for Confluent Cloud, we have broadened our reach of customers and are able to attract a greater array of customers, including those in the earlier stages of data streaming adoption. Our ability to attract new customers will depend on and has historically been impacted by a number of factors, including our success in recruiting and scaling our sales and marketing organization, our ability to accelerate ramp time of our sales force, expansion and refinement of our go-to-market strategies to reach additional customer opportunities and to focus on consumption over commitments, our ability to enhance our brand and educate potential customers about the benefits and reduced total cost of ownership of our offerings compared to alternatives for data in motion, such as Apache Kafka, Apache Flink, and Apache Iceberg, our ability to effectively and competitively price our offerings, our ability to expand features and functionalities of our offerings, our ability to grow and harness our partner ecosystem, macroeconomic uncertainty and challenges, and competitive dynamics in our target markets. As a result, growth rates in our new customers fluctuate over time.
Retaining and Expanding Revenue from Existing Customers
Our business model and future growth are driven by customer renewals and increasing existing customer consumption and subscriptions over time, referred to as land-and-expand. Our ability to retain and expand revenue from existing customers, including through increased consumption of our offerings and contractual commitments and renewals, will depend on and has historically been impacted by a number of factors, including market acceptance of our offerings compared to data-in-motion alternatives, such as Apache Kafka, Apache Flink, and Apache Iceberg, pricing of our offerings, customer satisfaction, expansion of features and functionalities of our offerings, competition, macroeconomic conditions, and overall changes in our customers' spending levels. In particular, we have experienced and expect to continue to experience volatility in consumption from some of our larger enterprise customers, resulting in lower consumption from time to time, primarily due to continued customer focus on cloud cost controls, as well as shifts in customers' data streaming strategies. Despite the continuing uncertain economic backdrop, as well as continuing volatility in rates of consumption and use case adoption, we believe we have significant opportunities to partner with our customers to help them realize increased value in Confluent in an efficient and sustainable manner, including through expansion of new use cases to drive their strategic goals. While these dynamics are expected to continue to result in reduced or fluctuating consumption expansion over the near term, we believe they can lead to more durable consumption expansion over time.
Investing in Growth and Scaling our Business
We believe our market opportunity is significant, and we are focused on continuing to make disciplined investments in our long-term revenue and profitability potential. We believe it is critical to scale across all organizational functions in order to capture this opportunity. Investments we make in our research and development and sales and marketing organizations will occur in advance of experiencing the benefits from such investments, and it may be difficult for us to determine if we are efficiently allocating resources. Our revenue growth potential is dependent on the effectiveness of such investments, which include the development of new product features and enhancements, and the continued refinement of our go-to-market strategies, including for our Data Streaming Platform products and our shift to a consumption-oriented sales model for Confluent Cloud. To navigate more challenging macroeconomic conditions, we intend to take a disciplined approach in investing to grow our business to take advantage of our expansive market opportunity while also optimizing for improvements in profitability, margins, and cash flow, including by streamlining our operating expenses.
Key Business Metrics
We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure our performance, and make strategic decisions. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.
Subscription Revenue
We believe subscription revenue reflects the performance of our business because it captures both delivery of contractual commitments from Confluent Platform and consumption from Confluent Cloud and WarpStream. We discuss subscription revenue under "Components of Results of Operations."
Customers with $100,000 or Greater in Annual Recurring Revenue ("ARR")
We define ARR as (1) with respect to Confluent Platform customers, the amount of revenue to which our customers are contractually committed over the following 12 months assuming no increases or reductions in their subscriptions, and (2) with respect to Confluent Cloud and WarpStream customers, the amount of revenue that we expect to recognize from such customers over the following 12 months, calculated by annualizing actual consumption of Confluent Cloud and WarpStream in the last three months of the applicable period, assuming no increases or reductions in usage rate. Services arrangements are excluded from the calculation of ARR. Large customer relationships lead to scale and operating leverage in our business model. Compared with smaller customers, large customers present a greater opportunity for us because they have larger budgets, greater potential for migrating more applications over time, and a wider range of potential use cases for data in motion. As a measure of our ability to scale with our customers and attract large enterprises to our offerings, we count the number of customers that contributed $100,000 or greater in ARR as of period end. Our customer count treats affiliated entities with the same parent organization as a single customer and includes pay-as-you-go customers, and may fluctuate due to acquisitions, consolidations, spin-offs, and other market activity. We had 1,487 and 1,346 customers with $100,000 or greater in ARR as of September 30, 2025 and 2024, respectively.
Dollar-Based Net Retention Rate ("NRR")
We calculate our dollar-based NRR as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end, or Prior Period Value. We then calculate the ARR from these same customers as of the current period end, or Current Period Value, and divide the Current Period Value by the Prior Period Value to arrive at our dollar-based NRR. The dollar-based NRR includes the effect, on a dollar-weighted value basis, of our Confluent Platform subscriptions that expand, renew, contract, or attrit. The dollar-based NRR also includes the effect of annualizing actual consumption of Confluent Cloud and WarpStream in the last three months of the applicable period, but excludes ARR from new customers in the current period. Our dollar-based NRR is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. We believe that our dollar-based NRR provides useful information about the evolution of our existing customers and our future growth prospects. Our dollar-based NRR was 114% as of September 30, 2025, demonstrating our ability to expand within existing customers. Over the near term, we expect our dollar-based NRR to be tempered as a result of our shift to a consumption-oriented sales model for Confluent Cloud. Our dollar-based NRR as of September 30, 2025 was also tempered by, and over the near term is expected to continue to be tempered by, consumption volatility, resulting in reduced consumption expansion from certain customers, as described above under "-Key Factors Affecting Our Performance-Retaining and Expanding Revenue from Existing Customers." Our methodology for calculating ARR may result in increased volatility in NRR as our customers' consumption trends have experienced and may continue to experience fluctuations across quarters. Refer to the section titled "Risk Factors-Risks Related to Our Business and Operations-We expect fluctuations in our financial results and key metrics, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price and the value of your investment could decline."
Components of Results of Operations
Revenue
We derive revenue primarily from subscriptions and, to a lesser extent, services.
Subscription Revenue. Our subscription revenue consists of subscriptions to our Data Streaming Platform for customers to stream, connect, process, and govern all of their data. Our subscription offerings are designed to span across all environments: Confluent Cloud, our fully-managed cloud-native offering, Confluent Platform, our self-managed software offering, and WarpStream, a BYOC managed service offering. The vast majority of our revenue from Confluent Cloud for the three and nine months ended September 30, 2025 and 2024 was based on usage-based commitments and is recognized on a usage basis, as usage represents a direct measurement of the value to the customer of the subscription transferred as of a particular date relative to the total value to be delivered over the term of the contract. Revenue from Confluent Platform includes revenue from term-based licenses and post-contract customer support, maintenance, and upgrades, referred to together as PCS. We recognize a portion of the revenue from our term-based license subscriptions at a point in time, upon delivery and transfer of control of the underlying license to the customer, which is typically the effective start date. Revenue from PCS, which represents a substantial majority of the revenue from our term-based license subscriptions, is recognized ratably over the contract term. Our subscriptions primarily have terms of one to three years, and are generally non-cancelable and non-refundable. We also provide pay-as-you-go arrangements, which consist of month-to-month SaaS contracts. Pay-as-you-go and WarpStream arrangements have historically represented an immaterial portion of our subscription revenue.
Services Revenue. Services revenue consists of revenue from professional services and education services, which are generally sold on a time-and-materials basis. Revenue for professional services and education services is recognized as these services are delivered.
We expect our total revenue may vary from period to period based on, among other things, the timing and size of new subscriptions, the rate of customer renewals and expansions, fluctuations in customer consumption of and adoption trends for our usage-based offering, delivery of professional services, ramp time and productivity of our sales force, the impact of significant transactions, and seasonality.
Cost of Revenue
Cost of Subscription Revenue. Cost of subscription revenue primarily includes personnel-related costs, including salaries, bonuses, benefits, and stock-based compensation, for employees associated with customer support and maintenance, third-party cloud infrastructure costs, amortization of internal-use software and acquired intangible assets, and allocated overhead costs for information technology, business systems, facilities, and recruiting. We expect our cost of subscription revenue to increase in absolute dollars as our subscription revenue increases.
Cost of Services Revenue. Cost of services revenue primarily includes personnel-related costs, including salaries, bonuses, benefits, and stock-based compensation, for employees associated with our professional services and education services, costs of third-party consultants and partners who supplement our services delivery team, and allocated overhead. We expect our cost of services revenue to fluctuate from period to period depending on the timing and delivery of professional services and education services.
Gross Profit and Gross Margin
Gross Profit. Gross profit represents revenue less cost of revenue.
Gross Margin. Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our subscriptions and services, changes in our revenue mix, including the mix of revenue between our Confluent Cloud, Confluent Platform, WarpStream, and service offerings, timing and amount of usage of third-party cloud infrastructure resources, infrastructure optimization, and timing and extent of our investments in growth and scaling our business. We expect our gross margin to fluctuate over time depending on the factors described above.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel-related costs are generally the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for information technology, business systems, facilities, and recruiting.
Research and Development. Research and development expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, and stock-based compensation, net of capitalized amounts, third-party cloud infrastructure expenses incurred in developing our offering, software and subscription services dedicated for use by our research and development organization, contractor and professional services fees, and allocated overhead. We expect our research and development expenses will continue to increase in absolute dollars as our business grows and we continue to invest in our offering.
Sales and Marketing. Sales and marketing expenses consist primarily of personnel-related costs, including salaries, sales commissions, bonuses, benefits, and stock-based compensation, amortization of deferred contract acquisition costs, which primarily consist of sales commissions and the associated payroll taxes, conferences, costs related to marketing programs, travel-related costs, and allocated overhead. Marketing programs consist of advertising, events, corporate communications, and brand-building and developer-community activities. We expect our sales and marketing expenses will increase in absolute dollars over time and continue to be our largest operating expense for the foreseeable future as we invest in our sales and marketing efforts.
General and Administrative. General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, and stock-based compensation for administrative functions including finance, human resources, and legal, professional fees, software and subscription services dedicated for use by our general and administrative functions, and allocated overhead. We expect our general and administrative expenses will increase in absolute dollars over time as we continue to invest in the growth of our business.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest earned on our cash and cash equivalents and marketable securities, including amortization of premiums and accretion of discounts on marketable securities, amortization of debt issuance costs, the change in fair value of certain derivative instruments, and gains and losses from foreign currency transactions.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists of income taxes in certain foreign and U.S. federal and state jurisdictions in which we conduct business. We released the valuation allowance against our U.K. deferred tax assets during the first quarter of 2025, but continue to maintain a full valuation allowance against our U.S. deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized.
Results of Operations
The following table sets forth our condensed consolidated statements of operations data for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Subscription | $ | 286,337 | $ | 239,851 | $ | 818,079 | $ | 671,455 | |||||||||||||||
| Services | 12,187 | 10,348 | 33,850 | 30,967 | |||||||||||||||||||
| Total revenue | 298,524 | 250,199 | 851,929 | 702,422 | |||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
|
Subscription(1)
|
62,033 | 52,162 | 179,932 | 153,380 | |||||||||||||||||||
|
Services(1)
|
14,926 | 11,541 | 40,315 | 36,525 | |||||||||||||||||||
| Total cost of revenue | 76,959 | 63,703 | 220,247 | 189,905 | |||||||||||||||||||
| Gross profit | 221,565 | 186,496 | 631,682 | 512,517 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
|
Research and development(1)
|
121,758 | 102,720 | 359,780 | 306,351 | |||||||||||||||||||
|
Sales and marketing(1)
|
142,822 | 137,968 | 432,712 | 402,185 | |||||||||||||||||||
|
General and administrative(1)
|
40,297 | 39,471 | 120,118 | 117,344 | |||||||||||||||||||
| Total operating expenses | 304,877 | 280,159 | 912,610 | 825,880 | |||||||||||||||||||
| Operating loss | (83,312) | (93,663) | (280,928) | (313,363) | |||||||||||||||||||
| Other income, net | 18,361 | 22,495 | 59,880 | 65,198 | |||||||||||||||||||
| Loss before income taxes | (64,951) | (71,168) | (221,048) | (248,165) | |||||||||||||||||||
| Provision for (benefit from) income taxes | 1,553 | 2,976 | (5,020) | 8,846 | |||||||||||||||||||
| Net loss | $ | (66,504) | $ | (74,144) | $ | (216,028) | $ | (257,011) | |||||||||||||||
__________________________________________________
(1)Includes stock-based compensation expense as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue - subscription | $ | 6,269 | $ | 6,931 | $ | 19,588 | $ | 20,130 | |||||||||||||||
| Cost of revenue - services | 1,675 | 2,286 | 5,373 | 7,082 | |||||||||||||||||||
| Research and development | 48,483 | 41,702 | 137,225 | 121,366 | |||||||||||||||||||
| Sales and marketing | 31,527 | 33,020 | 93,263 | 100,001 | |||||||||||||||||||
| General and administrative | 13,174 | 14,368 | 40,251 | 44,157 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 101,128 | $ | 98,307 | $ | 295,700 | $ | 292,736 | |||||||||||||||
The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Subscription | 96% | 96% | 96% | 96% | |||||||||||||||||||
| Services | 4 | 4 | 4 | 4 | |||||||||||||||||||
| Total revenue | 100 | 100 | 100 | 100 | |||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Subscription | 21 | 21 | 21 | 22 | |||||||||||||||||||
| Services | 5 | 5 | 5 | 5 | |||||||||||||||||||
| Total cost of revenue | 26 | 25 | 26 | 27 | |||||||||||||||||||
| Gross profit | 74 | 75 | 74 | 73 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 41 | 41 | 42 | 44 | |||||||||||||||||||
| Sales and marketing | 48 | 55 | 51 | 57 | |||||||||||||||||||
| General and administrative | 13 | 16 | 14 | 17 | |||||||||||||||||||
| Total operating expenses | 102 | 112 | 107 | 118 | |||||||||||||||||||
| Operating loss | (28) | (37) | (33) | (45) | |||||||||||||||||||
| Other income, net | 6 | 9 | 7 | 9 | |||||||||||||||||||
| Loss before income taxes | (22) | (28) | (26) | (35) | |||||||||||||||||||
| Provision for (benefit from) income taxes | 1 | 1 | (1) | 1 | |||||||||||||||||||
| Net loss | (22)% | (30)% | (25)% | (37)% | |||||||||||||||||||
__________________________________________________
Note: Certain figures may not sum due to rounding.
Comparison of the Three Months Ended September 30, 2025 and 2024
Revenue
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Subscription | $ | 286,337 | $ | 239,851 | $ | 46,486 | 19% | ||||||||||||||||
| Services | 12,187 | 10,348 | 1,839 | 18% | |||||||||||||||||||
| Total revenue | $ | 298,524 | $ | 250,199 | $ | 48,325 | 19% | ||||||||||||||||
Subscription revenue increased by $46.5 million during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase in revenue was primarily from sales to existing customers and the remaining increase was attributable to sales to new customers. Sales to new customers represent the revenue recognized from customers acquired in the 12 months prior to September 30, 2025. A further indication of our ability to expand revenue from existing customers is through our dollar-based net retention rate, which was 114% as of September 30, 2025. Confluent Cloud and Confluent Platform contributed 56% and 44%, respectively, of our subscription revenue during the three months ended September 30, 2025, compared to 54% and 46%, respectively, during the three months ended September 30, 2024.
Services revenue increased during the three months ended September 30, 2025 compared to the three months ended September 30, 2024 due to an increase in delivery of professional services.
Cost of Revenue, Gross Profit, and Gross Margin
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 62,033 | $ | 52,162 | $ | 9,871 | 19% | ||||||||||||||||
| Services | 14,926 | 11,541 | 3,385 | 29% | |||||||||||||||||||
| Total cost of revenue | $ | 76,959 | $ | 63,703 | $ | 13,256 | 21% | ||||||||||||||||
| Gross profit | $ | 221,565 | $ | 186,496 | $ | 35,069 | 19% | ||||||||||||||||
| Three Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Gross margin | |||||||||||
| Subscription | 78% | 78% | |||||||||
| Services | (22)% | (12)% | |||||||||
| Total gross margin | 74% | 75% | |||||||||
Cost of subscription revenue increased by $9.9 million during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was due to an increase of $6.1 million in third-party cloud infrastructure costs, an increase of $2.5 million in amortization of internal-use software, and an increase of $1.7 million in personnel-related costs and allocated overhead costs driven by increased headcount.
Cost of services revenue increased by $3.4 million during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was primarily due to an increase of $3.7 million in third-party contractors and partners who supplement our services delivery team, partially offset by a decrease of $0.5 million in personnel-related costs and allocated overhead costs driven by decreased headcount.
Our subscription gross margin remained consistent during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. Our services gross margin decreased primarily due to increased costs for third-party contractors and partners who supplement our services delivery team, partially offset by a decrease in personnel-related costs and allocated overhead costs driven by decreased headcount.
Research and Development
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Research and development | $ | 121,758 | $ | 102,720 | $ | 19,038 | 19% | ||||||||||||||||
| Percentage of revenue | 41% | 41% | |||||||||||||||||||||
Research and development expenses increased by $19.0 million during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was primarily due to an increase of $17.8 million in personnel-related costs and allocated overhead costs and an increase of $1.5 million in third-party cloud infrastructure costs. The increase in personnel-related costs was mainly driven by increased headcount and an increase of $6.8 million in stock-based compensation expense, net of amounts capitalized.
Sales and Marketing
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Sales and marketing | $ | 142,822 | $ | 137,968 | $ | 4,854 | 4% | ||||||||||||||||
| Percentage of revenue | 48% | 55% | |||||||||||||||||||||
Sales and marketing expenses increased by $4.9 million during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was primarily due to an increase of $5.2 million in personnel-related costs and allocated overhead costs, an increase of $1.8 million in travel-related costs, and an increase of $1.3 million in amortization of deferred contract acquisition costs, partially offset by a decrease of $4.6 million in marketing and event expenses. The increase in personnel-related costs was mainly driven by increased headcount, partially offset by a decrease of $1.5 million in stock-based compensation expense.
General and Administrative
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| General and administrative | $ | 40,297 | $ | 39,471 | $ | 826 | 2% | ||||||||||||||||
| Percentage of revenue | 13% | 16% | |||||||||||||||||||||
General and administrative expenses remained roughly consistent during the three months ended September 30, 2025 compared to the three months ended September 30, 2024.
Other Income (Expense), Net
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Other income, net | $ | 18,361 | $ | 22,495 | $ | (4,134) | (18)% | ||||||||||||||||
Other income, net decreased during the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The decrease was primarily due to a decrease of $3.4 million in interest income on marketable securities.
Provision for (Benefit from) Income Taxes
| Three Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Loss before income taxes | $ | (64,951) | $ | (71,168) | $ | 6,217 | (9)% | ||||||||||||||||
| Provision for income taxes | 1,553 | 2,976 | (1,423) | (48)% | |||||||||||||||||||
| Effective tax rate | (2.4)% | (4.2)% | |||||||||||||||||||||
The provision for income taxes during the three months ended September 30, 2025 and 2024 was primarily driven by foreign, federal, and state income taxes. Our effective tax rate may fluctuate to the extent the mix of earnings fluctuates between jurisdictions with different tax rates.
Comparison of the Nine Months Ended September 30, 2025 and 2024
Revenue
| Nine Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Subscription | $ | 818,079 | $ | 671,455 | $ | 146,624 | 22% | ||||||||||||||||
| Services | 33,850 | 30,967 | 2,883 | 9% | |||||||||||||||||||
| Total revenue | $ | 851,929 | $ | 702,422 | $ | 149,507 | 21% | ||||||||||||||||
Subscription revenue increased by $146.6 million during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase in revenue was primarily from sales to existing customers and the remaining increase was attributable to sales to new customers. Sales to new customers represent the revenue recognized from customers acquired in the 12 months prior to each discrete quarter end within the nine months ended September 30, 2025. A further indication of our ability to expand revenue from existing customers is through our dollar-based net retention rate, which was 114% as of September 30, 2025. Confluent Cloud and Confluent Platform contributed 56% and 44%, respectively, of our subscription revenue during the nine months ended September 30, 2025, compared to 53% and 47%, respectively, during the nine months ended September 30, 2024.
Services revenue increased during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 due to an increase in delivery of professional services.
Cost of Revenue, Gross Profit, and Gross Margin
| Nine Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 179,932 | $ | 153,380 | $ | 26,552 | 17% | ||||||||||||||||
| Services | 40,315 | 36,525 | 3,790 | 10% | |||||||||||||||||||
| Total cost of revenue | $ | 220,247 | $ | 189,905 | $ | 30,342 | 16% | ||||||||||||||||
| Gross profit | $ | 631,682 | $ | 512,517 | $ | 119,165 | 23% | ||||||||||||||||
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Gross margin | |||||||||||
| Subscription | 78% | 77% | |||||||||
| Services | (19)% | (18)% | |||||||||
| Total gross margin | 74% | 73% | |||||||||
Cost of subscription revenue increased by $26.6 million during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was primarily due to an increase of $14.4 million in third-party cloud infrastructure costs, an increase of $6.6 million in amortization of internal-use software, and an increase of $6.1 million in personnel-related costs and allocated overhead costs driven by increased headcount.
Cost of services revenue increased by $3.8 million during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This was primarily due to an increase of $7.0 million in third-party contractors and partners who supplement our services delivery team, partially offset by a decrease of $3.6 million in personnel-related costs and allocated overhead costs driven by decreased headcount.
Our subscription gross margin increased primarily due to efficiencies in personnel-related costs. Our services gross margin decreased primarily due to increased costs for third-party contractors and partners who supplement our services delivery team, partially offset by a decrease in personnel-related costs and allocated overhead costs driven by decreased headcount.
Research and Development
| Nine Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Research and development | $ | 359,780 | $ | 306,351 | $ | 53,429 | 17% | ||||||||||||||||
| Percentage of revenue | 42% | 44% | |||||||||||||||||||||
Research and development expenses increased by $53.4 million during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was primarily due to an increase of $44.4 million in personnel-related costs and allocated overhead costs, an increase of $8.0 million in acquisition-related compensation costs, and an increase of $5.0 million in third-party cloud infrastructure costs, partially offset by a decrease of $5.4 million in software license costs. The increase in personnel-related costs was mainly driven by increased headcount and an increase of $15.9 million in stock-based compensation expense, net of amounts capitalized.
Sales and Marketing
| Nine Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Sales and marketing | $ | 432,712 | $ | 402,185 | $ | 30,527 | 8% | ||||||||||||||||
| Percentage of revenue | 51% | 57% | |||||||||||||||||||||
Sales and marketing expenses increased by $30.5 million during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was primarily due to an increase of $18.0 million in personnel-related costs and allocated overhead costs, an increase of $5.2 million in travel-related costs, an increase of $3.4 million in amortization of deferred contract acquisition costs, and an increase of $1.9 million in company events. The increase in personnel-related costs was mainly driven by increased headcount, partially offset by a decrease of $6.7 million in stock-based compensation expense.
General and Administrative
| Nine Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| General and administrative | $ | 120,118 | $ | 117,344 | $ | 2,774 | 2% | ||||||||||||||||
| Percentage of revenue | 14% | 17% | |||||||||||||||||||||
General and administrative expenses increased by $2.8 million during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was primarily due to an increase of $2.2 million in software license costs. Total personnel-related costs and allocated overhead costs remained roughly consistent year over year, but includes the impact of increased headcount, partially offset by a decrease in stock-based compensation expense.
Other Income (Expense), Net
| Nine Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Other income, net | $ | 59,880 | $ | 65,198 | $ | (5,318) | (8)% | ||||||||||||||||
Other income, net decreased during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The decrease was primarily due to a decrease of $7.5 million in interest income on marketable securities driven by lower yields, partially offset by an increase of $1.4 million for the impact of foreign currency transaction gains and losses.
Provision for (Benefit from) Income Taxes
| Nine Months Ended September 30, | Change | ||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Loss before income taxes | $ | (221,048) | $ | (248,165) | $ | 27,117 | (11)% | ||||||||||||||||
| (Benefit from) provision for income taxes | (5,020) | 8,846 | (13,866) | (157)% | |||||||||||||||||||
| Effective tax rate | 2.3% | (3.6)% | |||||||||||||||||||||
The Company's benefit from income taxes was $5.0 million for the nine months ended September 30, 2025. The income tax benefit was attributable to the $16.4 million release of the valuation allowance of U.K. deferred tax assets in the three months ended March 31, 2025, partially offset by the Company's provision for income taxes of $11.4 million for the nine months ended September 30, 2025. See Note 12, Income Taxes, to our condensed consolidated financial statements for further information.
The Company's provision for income taxes during the nine months ended September 30, 2024 was primarily driven by foreign, federal, and state income taxes.
Liquidity and Capital Resources
To date, we have financed operations primarily through proceeds received from issuances of equity and debt securities and payments received from our customers. In December 2021, we issued $1.1 billion aggregate principal amount of 0% convertible senior notes due 2027 (the "2027 Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The net proceeds from the issuance of the 2027 Notes, after deducting the initial purchasers' discounts and commissions and debt issuance costs, were $1,080.5 million.
As of September 30, 2025, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1,989.8 million. Our cash, cash equivalents, and marketable securities consist of bank deposits, money market funds, corporate notes and bonds, commercial paper, U.S. agency obligations, U.S. treasury securities, and time deposits. We believe that existing cash, cash equivalents, marketable securities, and cash flow from operations will be sufficient to fund our short-term and long-term operating and capital needs, including our purchase obligations primarily related to our non-cancelable agreements for third-party cloud infrastructure, and operating lease commitments primarily related to our office space. During the nine months ended September 30, 2025, we entered into a services agreement that includes a non-cancelable commitment of $125.0 million payable over the next five years through June 2030. There were no other material changes to our purchase obligations from those disclosed in our Annual Report. See Note 9, Commitments and Contingencies,to our condensed consolidated financial statements for further information.
We have generated significant operating losses and negative cash flows from operations. As of September 30, 2025, we had an accumulated deficit of $2,205.2 million. We may require additional capital resources to execute strategic initiatives to grow our business. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing and international operations, and the continuing market acceptance of our subscriptions and services. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.
The following table summarizes our cash flows for the periods presented:
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 22,162 | $ | (1,751) | |||||||
| Net cash used in investing activities | $ | (167,243) | $ | (85,226) | |||||||
| Net cash provided by financing activities | $ | 56,635 | $ | 60,302 | |||||||
Cash Flows from Operating Activities
We generally invoice our customers annually in advance for our term-based licenses and typically annually in advance or monthly in arrears for our SaaS offering. Our largest source of operating cash is payments received from our customers. We have in the past and expect in the future to experience seasonality, with the fourth quarter historically being our strongest quarter for sales to customers as a result of large enterprise buying patterns. Accordingly, the operating cash flow benefit from increased collections from our customers generally occurs in the subsequent quarter after billing. We expect seasonality, timing of billings, and collections from our customers to have a material impact on our cash flow from operating activities from period to period. Our primary uses of cash from operating activities are for personnel-related expenses, third-party cloud infrastructure costs, sales and marketing expenses, and overhead expenses.
Cash provided by operating activities of $22.2 million for the nine months ended September 30, 2025 primarily consisted of our net loss of $216.0 million, adjusted for non-cash charges of $336.9 million, and net cash outflows of $98.7 million from changes in our operating assets and liabilities. Our non-cash charges included $295.7 million of stock-based compensation expense, net of amounts capitalized, $43.5 million of amortization of deferred contract acquisition costs, and $21.8 million of depreciation and amortization of property equipment and acquired intangible assets, partially offset by $17.9 million of net accretion of discounts on marketable securities, and a $16.9 million decrease in deferred income taxes primarily due to the release of a valuation allowance on certain deferred tax assets. The main drivers of the changes in operating assets and liabilities were a $45.1 million increase in deferred contract acquisition costs due to our sales, a $44.6 million increase in accounts receivables due to timing of billings and collections as well as overall growth of our sales, a $43.4 million decrease in accrued expenses and other liabilities due to purchases under our employee stock purchase plan and timing of accruals and payments, and a $29.7 million increase in prepaid expenses and other assets related to timing of payments made in advance of future services, partially offset by a $66.1 million increase in deferred revenue due to timing of billings and revenue recognition.
Cash used in operating activities of $1.8 million for the nine months ended September 30, 2024 primarily consisted of our net loss of $257.0 million, adjusted for non-cash charges of $326.7 million, and net cash outflows of $71.4 million from changes in our operating assets and liabilities, net of the effects of a business combination. Our non-cash charges included $292.7 million of stock-based compensation expense, net of amounts capitalized, $40.0 million of amortization of deferred contract acquisition costs, and $15.9 million of depreciation and amortization of property equipment and acquired intangible assets, partially offset by $29.6 million of net accretion of discounts on marketable securities. The main drivers of the changes in operating assets and liabilities were a $50.2 million increase in accounts receivables due to overall growth of our sales as well as timing of billings and collections, a $37.3 million increase in deferred contract acquisition costs due to our sales, and a $7.2 million decrease in accrued expenses and other liabilities due to purchases under our employee stock purchase plan and timing of accruals and payments, partially offset by a $21.3 million increase in deferred revenue corresponding with our increased sales.
Cash Flows from Investing Activities
Cash used in investing activities of $167.2 million for the nine months ended September 30, 2025 was primarily due to purchases of marketable securities of $1,286.2 million and capitalized internal-use software development costs of $16.4 million, partially offset by proceeds from maturities and sales of marketable securities of $1,139.3 million.
Cash used in investing activities of $85.2 million for the nine months ended September 30, 2024 was primarily due to purchases of marketable securities of $1,172.4 million, cash paid for a business combination, net of cash acquired of $115.5 million, and capitalized internal-use software development costs of $16.0 million, partially offset by proceeds from maturities and sales of marketable securities of $1,222.8 million.
Cash Flows from Financing Activities
Cash provided by financing activities of $56.6 million for the nine months ended September 30, 2025 was due to $32.7 million in proceeds from the issuance of common stock upon exercises of stock options and $23.9 million in proceeds from the issuance of common stock under our employee stock purchase plan.
Cash provided by financing activities of $60.3 million for the nine months ended September 30, 2024 was due to $36.3 million in proceeds from the issuance of common stock upon exercises of stock options and $24.0 million in proceeds from the issuance of common stock under our employee stock purchase plan.
Critical Accounting Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our financial condition, results of operations, and cash flows will be affected.
There have been no material changes to our critical accounting estimates as compared to those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report.
Recent Accounting Pronouncements
See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recent accounting pronouncements.
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