Matt Hedberg: Great. And then maybe just a quick follow-up. Obviously good execution here in Q4 and Rohan noted that new customer ads have increased in January, which is good to hear. Have you just heard any more just general feedback from the sales force on these changes? And did you notice any abnormal sales repetition?
Jay Kreps: Yes, it’s a great question. So like when we were thinking about the risks involved in this consumption transformation, that was definitely one of our potential risks, was like, hey, this is a big change for the sales team. What we’ve seen so far, I think has been very promising. So first of all, people understood why we were doing it. They felt like it was coming more in line with some of the pure companies and those companies have done it successfully. So I think there’s enough kind of in the water that this makes sense. I think it’s in line with what we see from customers, like what customers want to do. So I think it made sense to people. We’ve had a lot of conversations with bag carrying sales reps, sales leaders, at our sales kickoff last week and I was expecting a more mixed set of feedback.
Usually if you make big changes, you get a little bit of everything. On the whole, I thought it was extremely positive so that’s been good. And then attrition, that was one of our concerns. Overall, that’s not been an issue. Attrition is under what we modeled for the year and in-line with historical norms for years when we hadn’t had this change, so that’s very positive.
Matt Hedberg: Great to hear. Congrats, guys.
Shane Xie: All right, thanks, Matt. We’ll go to Mike Cikos with Needham next followed by William Blair.
Mike Cikos: Hey, thanks for taking the questions, guys. And I just wanted to pick up where Matt left off, just because I know that there’s so much focus on this go to market transformation that you guys have been talking about. We’re probably going to get this question. I just want to get it in a public forum here. But the concern, if we wanted to play devil’s advocate, is that part of the Q4 strength was driven by, let’s say, sales reps really trying to jam some of these contracts in under the old incentive structure. Can you just parse that out while we have everyone here to hear? I guess what you saw on that front?
Jay Kreps: Yes, I’m happy to do that. I mean, first, it’s important to understand that there’s no change for Confluent Platform, the licensed software offering. Sales reps always want to get something done in the current year if they can, but there’s no particular need to jam it through in 2023 versus 2024 on the Confluent platform side. On the Confluent Cloud side, it’s very important to understand the revenue actually comes with the consumption. And so what you’re seeing has nothing to do with the kind of deals closing that would show up in RPO, but the revenue represents just the increase in consumption, as you would expect. So, yes I don’t think there was — always people want to close deals as soon as they can, but I don’t think there was a huge transition or kind of pull forward.
Mike Cikos: Great. And then a bit of a two part here, one to close out the sales and another just to the broader platform. The first, more just a financial checking here, but for Rohan, maybe you could give us a comment. But I think last quarter, the company had alluded to maybe 200 to 300 bps of an operating margin headwind based on the upfront expense recognition for Confluent Cloud with this incentive structure. Can you confirm that’s still the case when we think about this guidance here for the year? And then the second part, again, this is coming back to you, Jay, but can you talk about the importance of Flink? And where I’m going with this is, I believe Flink actually generalizes the processing. Right? You can’t handle both, streaming and batch processing. And again, for those folks who don’t have the technical shots, myself included, but what is the importance of that generalization when we think about the potential that Flink has for your platform?
Jay Kreps: Yes, great. Do you want to go first, Rohan?
Rohan Sivaram: Yes, I’ll go first, Mike, you’re right. What we said last quarter was around just how commission is recognized and that had a 200 to 300 basis point headwind to our operating margins. That still holds good and that impact has actually been incorporated into our guide that we shared. So the seven percentage points improvement that we are talking about year-over-year takes into account that dynamic that’s happening. So to you just confirm what you said, it’s true.
Mike Cikos: Perfect. Thank you for that.
Jay Kreps: Yes. And then on the Flink side, that’s exactly right. When people think about streaming, one of the mistakes I think they often make is to think of it as kind of a niche. Right? What’s actually happened in the world to make this area successful is it’s really kind of a generalization of the batch systems. And that’s actually true in the Kafka layer where data is streamed, but it’s actually stored permanently, if you like, as well. And it’s true in the Flink layer, where data is processed in real-time but can also be reprocessed in batch. So it has actually a very sophisticated batch processing engine as well. And it’s a bit into the tech weeds, but that ability to provide something, that’s a generalization, that’s actually key to the earlier point of what workloads would move. Why would they move? You want something that is as capable as fully featured, can handle the full set of workloads, but now does them continuously in sync with the business.
Mike Cikos: Terrific. Thank you for that. I’ll have to nerd out with you on that another time, but I appreciate it. Thank you, guys.
Shane Xie: All right, thanks Mike. We’ll go to Jason Ader with William Blair next, followed by Goldman Sachs. Jason?
Jason Ader: Yes. Thanks, Shane. Good afternoon, guys. First question for you, just beyond the comp model shift that you guys have undertaken here, I just wanted to get some more detail on some of the organizational changes. I know you have a new CRO. Can you just talk about how sales Ops is changing account coverage, sales engineering, customer success, partner engagement, just sort of a little bit of the lay of the land in terms of how the sales organization looks today versus what it looked like a year or two ago.
Jay Kreps: Yes. So, the field operations overall remains under Erica Schultz. There are some changes within that, that kind of line up to this consumption, right changes a little bit in how the sales engineers operate since the distinction between kind of land and expand is now a little bit different in a consumption world, changes in some of the organizations in the Americas and elsewhere as.
Jason Ader: Okay. And so it’s more of a tweak. Is that fair versus an overhaul?
Jay Kreps: Yes. I don’t know where the line between one and the other is, but on the whole, I feel like we’ve had a lot of continuity in that team. The people kind of driving this are the same people who kind of set up the set of changes that we executed in 2023. So I think there’s been a lot of continuity in how we’ve thought about the kind of set of adjustments we would need to make.
Jason Ader: Okay. And then one quick one for Rohan. Can you talk about the shape of the quarterly revenues in 2024 and any rough cut on impact of Flink and timing of impact from Flink?
Rohan Sivaram: Yes, I’ll start with the second part. Jason, with respect to Flink, as we mentioned earlier, we expect to GA Flink in Q1. And with any kind of infrastructure product, it takes a couple of quarters for customers to start build the applications and use it. So as we said before, very consistent with what we’ve said before, we expect revenue, material revenue contributions from Flink to happen in fiscal year 2025. So that’s on the Flink part. On the shape, I’ll just call out a couple of things. I’m not going to guide or provide color commentary on every quarter, but in general, I think one thing I can give you some additional color is around the shape of the cloud business for 2024. In general, cloud as a percentage of total revenue for 2024, we expect to be in the range of 50% to 51%, which is kind of in line with where the estimates are.
And of course, from a first half versus second half, what I’ve shared earlier is as a result of the consumption transformation, we’re expecting second half growth rates to be slightly more elevated than first half. But as you can see from the guide, it’s not a huge acceleration in that number. Hope that helps. Yes.
Jason Ader: Very helpful. Thank you.
Shane Xie: Thanks, Jason. We’ll go to Kash Rangan with Goldman, followed by JPMorgan. Kash?
Kash Rangan: Yes. Thank you very much. Good to connect with you guys. So as you float the new consumption model and how salespeople are going to get compensated, what has been the customer feedback? Does it change anything about the way the customer is going to be dealing with the Confluent, regardless of the way you compensate your salespeople? And secondly, Jay, as you go into 2024, we’re hearing a lot more Flink. The message Confluent is an elegant technology platform. It’s pretty complicated, but it gets even more complicated as we get into discussion of where Flink fits in versus Kafka. How are we to navigate this complexity in the technology portfolio versus the complexity in the way we’re going to be compensating salespeople? What are the tools and techniques you’re giving your go to market organization to navigate and get through this complication? Thank you.
