We believe this represents a tremendous opportunity for Confluent as customers evolve from experimentation in the short-term to production in the medium and long-term. We continue to invest in our product and in our partner ecosystem to address the demands we see across customers. Alongside Anthropic, we recently partnered with a vector database vendor, Pinecone, and their new Pinecone serverless offering. Our integration allows customers to build retrieval augmented generation or RAG pipelines that allow customers to bring together the real-time state of their proprietary data sources with general purpose AI models. OpenAI has become the poster child of Gen AI. In Q4 OpenAI signed with us to improve their visibility into customer usage patterns.
We are still in early stages with this customer, but we have already identified additional use cases, including ways to help reduce costs across their stack. This customer and others like it continue to validate the strategic role of data streaming in the generative AI landscape.
ACERTUS:
ACERTUS:
ACERTUS:
NetSuite:
ACERTUS: We continue to see strong growth in India, particularly in the digital native segment. A fast growing e-commerce brand is a great example. By matching the world of fashion to the best technology, this company has experienced massive growth. In 2023, it reached tens of millions of new app users while growing its customer base by 100% in the last 18 months. Previously, their data platform relied on open source Kafka to power end-to-end e-commerce workflows, fulfilment, real-time inventories and order management. But with the company’s explosive growth came challenges scaling open source Kafka, resulting in large maintenance overheads and over provisioning. So in Q4, they turned to Confluent Cloud with a seven figure deal to power six business services that previously used open source Kafka and plans to leverage our full platform, including steering, Stream Governance, connectors and stream processing, to support their ambitious growth goals.
In closing, we’re pleased with our strong finish to fiscal year 2023. We are more confident than ever that our transformation to a fully consumption oriented business and continued innovation in our category leading platform will serve as a catalyst for winning the $60 billion market opportunity in front of us. With that, I’ll turn things over to Rohan.
Rohan Sivaram: Thanks Jay. Good afternoon everyone. I’ll start with a brief recap of our full year results. In fiscal year 2023, total revenue grew 33% to $777 million. Confluent Cloud revenue grew 65% to $348.8 million and non-GAAP operating margin improved 23 percentage points to end the year at negative 7.4%. This includes the fourth quarter where we achieved our first positive non-GAAP operating margin of 5.3%, far exceeding the breakeven target we set a year ago. As we look back at fiscal year 2023, we are pleased to have delivered on our commitment of driving higher revenue growth while accelerating our path to positive non-GAAP operating margin by one year. Our ability to achieve $750 million plus revenue and positive non-GAAP operating margin in just nine years since the company’s founding is a major accomplishment.
It required substantial effort across every team in the company to achieve this milestone. I’m proud of our incredibly talented teams at Confluent and I’d like to thank our employees, customers and partners for their important contribution throughout the years. Turning to the Q4 results, key highlights include robust subscription revenue growth with our first$100 million quarter for both Confluent Cloud and Confluent Platform. Record high non-GAAP total gross margin, driven by strong unit economics of our product offerings and our first positive quarter for both non-GAAP operating margin and free cash flow margin, underscoring our commitment to driving efficient growth at scale. Total revenue for the quarter grew 26% to $213.2 million. Subscription revenue grew 31% to $202.8 million.
Within subscription, Confluent Platform revenue grew 18% to $102.8 million, representing 48% of total revenue. The strength was driven by healthy demand for Confluent Platform in regulated industries. Confluent Cloud revenue grew 46% to $100 million, exceeding our guidance of $97.5 million and ended the quarter at 47% of total revenue, compared to 41% of revenue a year ago and 46% last quarter. We are pleased with the healthy consumption we saw in our digital native customers despite a still uncertain macro environment. Turning to the geographical mix of revenue, revenue from the U.S. grew 27% to $127.6 million. Revenue from outside the U.S. grew 25% to $85.5 million. Moving on to rest of the income statement, I’ll be referring to non-GAAP results unless stated otherwise.
Total gross margin reached another record high of 77.5%, up 450 basis points. Subscription gross margin also reached a record high of 81.1%, up 240 basis points. Gross margin outperformance was driven by strong Confluent Platform margin and the efficiency and optimization we continue to realize in our cloud offering. Turning to profitability and cash flow, we achieved positive operating margin for the first time as a public company, improving 27 percentage points to 5.3%, representing our 6th consecutive quarter of more than 10 points and third consecutive quarter of more than 20 points in margin improvement. Our relentless focus on driving operational efficiency across the company resulted in improvement in every category of our operating expenses, with the largest improvement of 16 percentage points in sales and marketing expenses as a percentage of total revenue.
Net income per share was $0.09 for Q4 using 342.4 million diluted weighted average shares outstanding. Fully diluted share count under the treasury stock method was approximately 356.1 million. Free cash flow margin also turned positive in the quarter, improving 21 percentage points to 3.2%, and we ended the fourth quarter with $1.9 billion in cash, cash equivalents and marketable securities. Turning now to other business metrics. In Q4 total customer count grew 9% to approximately 4960. Customers with 100k or more in ARR grew 21% to 1229 and customers with $1 million or more in ARR grew 24% to 158. We ended fiscal year ’23 with 19 customers with $5 million or more in ARR, up from nine customers a year ago. This reflects our customers’ strong confidence in standardizing on our data streaming platform, making Confluent the central nervous system of their technology stack.
We believe the completion of our consumption transformation in fiscal year ’24 will help accelerate the growth of our total customer count. In fact, we saw good traction in total customer count in January. While early, we believe the transformation will make it even easier for our customers and prospects to try, adopt and expand across stream, connect, process and govern in our product portfolio. NRR in the quarter was slightly above 125%, exceeding our midterm target threshold of 125%. Gross retention rate remained strong and was above 90%. As discussed last quarter, we expect NRR will be between 120% and 125% as we go through our consumption transformation this year. As we exit the transformation and starting fiscal year ’25, we expect NRR to revert to Q4 ’23 levels and exceed our midterm target threshold of 125%.
RPO was $919.9 million, up 24%. Current RPO estimated to be 64% of RPO was $591.9 million, up 30%. As called out last quarter, RPO related metrics are less relevant beginning this year given our greater focus on driving consumption for our cloud business.
aquahire: Now, I would like to discuss Confluent’s positioning for 2024 and beyond. Driven by our TAM, technology and team, we have shown in our 2023 results our success in driving efficient growth at scale. In 2024 our TAM, technology and team are only getting stronger. First, our $60 billion plus TAM is underpinned by the prevalence of data streaming, as more than 150,000 organizations have built around streaming along with long-term secular tailwinds such as cloud migration and Gen AI. Second, our technology differentiation is expanding rapidly. We have successfully evolved from a single product streaming company to the industry’s only data streaming platform company. Our DSP is cloud native, complete with stream, connect, process and govern and available everywhere.
Our customers are excited about the innovation we plan to bring to the market in 2024 as we have one of the most exciting product release cycles coming up in the history of the company, starting with Flink GA in Q1. Finally, our team has proven ability to execute with the latest accomplishment of delivering higher revenue growth annually while improving non-GAAP operating margin by more than 46 points in just ten quarters. In 2024, we have strong alignment and commitment across every function of the company to deliver on our consumption transformation. This will put us in a better position, more aligned with our customers to address the $60 billion plus TAM in front of us. Given this backdrop, we are focused on sustaining efficient growth in 2024 by delivering our first breakeven year for both non-GAAP operating margin and free cash flow margin.
Given our solid Q4 performance, we feel confident in delivering 22% total revenue growth for 2024 and eventually returning to our midterm target growth of 30%. Turning now to our guidance. As announced on our last earnings call, we will be transitioning our revenue guidance metrics to subscription revenue beginning this quarter. To assist the investment community with transitioning to our new guidance practice, we will continue to provide total revenue guidance for the first two quarters of 2024 and for full year 2024. We will fully transition to providing only subscription revenue guidance beginning with Q3. For the first quarter of 2024, we expect total revenue to be in the range of $211 million to $212 million, representing growth of 21% to 22%.
Subscription revenue, which is our new guidance metric and consists of Confluent Cloud and Confluent Platform revenue will be in the range of $199 million to $200 million, representing growth of 24% to 25%. Non-GAAP operating margin at approximately negative 4%, representing improvement of approximately 19 percentage points, and non-GAAP net income per diluted share to be approximately 0 to $0.02. For the full year 2024, we expect total revenue to be approximately $950 million representing growth of approximately 22%, non-GAAP operating margin to breakeven, representing improvement of approximately 7 percentage points, and non-GAAP net income per diluted share of approximately $0.17. Additionally, I’d like to provide some modeling points. We expect Confluent Cloud revenue in Q1 to be approximately $105 million, representing growth of approximately 43%.
We expect free cash flow margin in fiscal year ’24 to breakeven, representing improvement of approximately 16 percentage points. Consistent with prior years, Q1 free cash flow margin will continue to show pronounced seasonality, primarily due to our corporate bonus payout, employee stock purchase program and the holdback payment related to our Immerok acquisition. Despite these headwinds, we expect Q1 free cash flow margins to improve approximately 20 percentage points year-over-year. Finally, we are pleased with decreasing our annualized net dilution from 4.7% in fiscal year ’22 to 3.5% in fiscal year ’23. We expect net dilution for fiscal year ’24 will be approximately 3%, in-line with our midterm target. Our goal over the long-term is to bring net dilution down to under 2%.
In summary, we are pleased with closing out the year with solid fourth quarter results. Our track record of improving non-GAAP operating margin is a testament to the power of our innovation engine and our commitment of driving efficient growth. Looking forward to 2024, we are focused on achieving our first positive non-GAAP operating margin and free cash flow margin for the full year while delivering on our top line commitment. Now, Jay and I will take your questions.
