For the full year 2024, we now expect total revenue to be approximately $957 million, representing growth of approximately 23%. Subscription revenue to be approximately $910 million, representing growth of approximately 25%. Non-GAAP operating margin to break even, representing improvement of approximately 7 percentage points. Free cash flow margin to break even, representing improvement of approximately 16 percentage points. And non-GAAP net income per diluted share to be in the range of $0.19 to $0.20. Finally, we expect net dilution for fiscal year 2024 will be approximately 3%, in line with our mid-term target. Our long-term target is to bring net dilution down to under 2%, which we expect will drive SBC as a percentage of total revenue down to the mid-teens over time.
In closing, we’re pleased with our strong topline and bottomline performance in the first quarter. Our consumption transformation has shown early signs of success. The value proposition of our multi-product platform is resonating with customers. We will stay focused on delivering innovation and value to our customers while continuing to fine-tune our go-to-market effort, which we believe will put us in a stronger position to capture our market opportunity ahead. Now, Jay and I will take your questions.
A – Shane Xie: All right. Thanks Rohan. To join the Q&A, please raise your hand on Zoom. And today, our first question will come from Sanjit Singh with Morgan Stanley, followed by RBC. Sanjit, please go ahead.
Sanjit Singh: Yeah. Thank you for taking the questions. Congrats on a solid start to the year. Jay, I want to go back to the big macro environment in terms of just the pace of new software development projects. I remember last year, that had definitely slowed down quite a bit. What are you seeing now in terms of just new software development initiatives and maybe you can sort of tie that into some of the sales transformation efforts that you have going on in your organization?
Jay Kreps: Yeah. I think we’ve seen overall a stabilization. I would say the focus for a lot of our customers over the last year was really heavy focus on cost optimization with some amount of new developments, but really only the most necessary things and I do think that’s picked up a little bit. That’s probably most pronounced in the digital native segment, where they were probably the hardest hit last year and they probably have the biggest bounce back in terms of focus on AI-related initiatives and other developments. So I would say that’s positive. And then on the consumption transformation, I think, that’s gone really well. I do feel like we’ve seen, we had to execute really a large number of changes in a pretty short period of time.
And I think we really significantly derisked the set of changes by rolling out a bunch of system changes. They were well adopted by our field team. They’ve actually proven themselves out with customers. And I think that’s shown up in the higher rate of new customer acquisition. And I think one of the nice things is, in addition to just getting more customers, we’re actually targeting and getting higher propensity customers. So it’s kind of more volume and higher quality. So, yeah, we felt like that was overall a really good result.
Sanjit Singh: That’s great to hear. I really appreciate the breakout on some of the new product contributions in Q1 2024. In terms of the monetization strategy across the pillars of DSP, could you just outline that for us? And how does Tableflow potentially get monetized over time?
Jay Kreps: Yeah. Yeah. So each of those represents kind of a distinct monetization opportunity. So the connectors, we charge for each of these connectors. There’s a couple pricing levers, but it roughly correlates with how many instances of the connector and the amount of volume of data flowing. For Flink, it’s kind of the compute hours, very similar to the models you’d see for other processing services like Snowflake. For Governance, it’s an uplift that comes as kind of a flat fee as you move to our advanced Governance package, as well as something that scales up with your usage of the product. And Tableflow is new. So it’s just in early access now. We haven’t announced any pricing, but that will also have monetization opportunities to come off of it.
Sanjit Singh: I appreciate the color, Jay. Thank you.
Shane Xie: All right. Thanks, Sanjit. We’ll take our next question from Matt Hedberg with RBC, followed by Barclays. Matt?
Matt Hedberg: Hey. Thanks, guys. Congrats on the results. Really nice to see. Maybe as a follow-up to Sanjit’s question, you guys have a lot of company-specific drivers that are certainly seeming to be apparent in your numbers. I’m just sort of curious, though, could you help us think about how important improving hyperscaler trends and growth rates that we’re seeing and that is also relevant to your success? Just trying to get a sense for how much of it is just sort of more of the environment versus Confluent specific?
Jay Kreps: Yeah. Yeah. It’s a good question. I mean, I don’t know that the specific performance of other companies directly drives us, but there’s obviously some amount of correlation in all spend in the cloud. If we were breaking out the different things, I would say, the success of our consumption transformation thus far, that’s an important factor. I think the kind of DSP components that Rohan outlined, our early contributors probably, Connect is the furthest along, followed by Governance and Flink just went GA, so that’s just starting to ramp to revenue contribution and we’ll contribute more coming into next year.
Matt Hedberg: If I could just one quick follow-up, actually, that’s a nice tie, it sounds like, Jay, you mentioned 600 prospects have tried Flink. It’s great to hear. I mean, we’re starting to hear it show up in partner conversations as well. It sounds like a 2025 thing. I’m just wondering, Rohan, you — when you think about it in guidance, are you considering any Flink contributions in the second half of 2024?
Rohan Sivaram: Yeah. Matt, thanks for your question. Well, we’ve said this before, Flink is a big opportunity for us and 2024 is all about adoption, and 2025 is all about monetization. So from an overall what’s included in guidance, we’re basically assuming that the contribution, the material contribution from Flink will happen in fiscal year 2025.
Matt Hedberg: Got it. Thanks, guys.
Shane Xie: All right. Thanks, Matt. We’ll take our next question from Raimo Lenschow with Barclays, followed by William Blair.
Raimo Lenschow: Hey. Thank you. Thanks for taking my question and congrats from me as well. Jay, on the Flink side, now that you have proper early customer conversations, what are you seeing in terms of the adoption curve do you see in there and you obviously saw — have seen Kafka before. What’s the early customer conversations there and what does it drive you to think about the addressable market coming out of that one?
Jay Kreps: Yeah. I would say it’s been very positive. There’s incredible enthusiasm in our customer base, really across the broad set of customers, from the digital natives to large enterprises. It’s early in the adoption for any of these cloud offerings. Nobody wants to build production workloads against a pre-GA product, so this milestone of going GA is really the starting line and then it’s really about the build of production workloads. And each workload adds a little bit of continuous revenue production and as those build up within customers, that’s where it starts to contribute meaningfully. And so I would say overall, both the development of that product and the market reception has gone about, as well as we could possibly expect, as we initiated the development of the Flink offering. Now it’s really on us to go execute it as a business and make customers successful with it, which is obviously a very important next step.
Raimo Lenschow: Yeah. And then one follow-up, Rohan, where I get a lot of the questions at the moment from the financial communities on RPO, CRPO. Maybe it’s worth a reminder of why that’s kind of, how that number came together and how that number needs to be seen in the overall context of the results? Thank you.
Rohan Sivaram: Absolutely. Raimo, we’ve called it out last quarter. When we think about the consumption transformation, one of the important changes that we are driving is making sure we’re driving and incentivizing and focusing on consumption and not the commitment from the customer. And what that means is RPO is nothing but the commitment from the customer. And that’s not a huge focus for us because what drives Confluent Cloud is the next unit of consumption. And as a result of that, we said that when you think about the forward-looking indicators of our business, consumption revenue and subscription revenue are true indicators of organic growth for us and that will be probably a more leading indicator than RPO, CRPO.
Raimo Lenschow: Very clear. Thank you. Appreciate that.
Shane Xie: Thanks, Raimo. We’ll take our next question from Jason Ader with William Blair, followed by Wells Fargo.
Jason Ader: Yeah. Thanks, Shane. Good afternoon, guys. Just wanted to ask about GenAI. You gave some customer examples where folks are using your technology as part of GenAI projects. Can you talk a little bit more about the timing of actual impact to the revenue and then what specific products are you selling? Is it just the streaming or is it some of the other elements of the DSP?
Jay Kreps: Yeah. Yeah. The — so, as we described, I would say that’s ramping now, like, we are seeing customers that are adopting this. Usually, the digital natives are a little further ahead in their use cases. This is one of a number of use cases for us. It’s not the only thing happening, but it’s an important one and I think a strategic one for customers. So, yeah, I think that, as these initiatives hit production, I think we’ll see an increasing ramp of contribution from them heading into next year. The — what their customers are using is really the full platform. Like our role in this is to be the kind of supply chain of data. So that involves our connectors, involves Quora, our Kafka engine. It will increasingly involve Flink and the integration into the LLMs that we just announced at Kafka Summit Bangalore. And so, yeah, I think all of those will be driven by these use cases.
Jason Ader: Yeah. And one quick follow up for Rohan. Rohan, can you talk about hiring right now? You seem to be doing a good job managing expenses, but I assume that, with things stabilizing, you guys are ramping up some of your hiring and that’s one of the reasons why the op margins are going to be flat this year, but just maybe some thoughts on the hiring?
Rohan Sivaram: Yeah. I mean, Jason, when we really think about our resource allocation philosophy, it is obviously driving durable and efficient growth. And when I say durable growth, it’s essentially extending our runway to growth over a long period of time. And as we think about that, of course, like investment and investment in headcount is a key part of that goal. So, for example, in Q1, we’ve had one of our strongest hiring quarters for the go-to-market organization, which is great. And so, yeah, I think, we feel pretty good with respect to where we are and how we are thinking about a balanced approach on growth and profitability. On your question on the margins, like as you know, over the last, say, 24 odd months, we’ve improved our efficiency by over 40 percentage points. And heading into this year, we’re on track to deliver the 7 percentage point improvement, which is going to get us to break even for the full year and we are on track to get there.
