Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________
FORM 10-Q
___________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number: 001-38240
___________________
MONGODB, INC.
(Exact Name of Registrant as Specified in its Charter)
___________________
Delaware
 
26-1463205
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
229 W. 43rd Street, 5th Floor
New York, NY
 
10036
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 646-727-4092
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
ý   (Do not check if a small reporting company)
Small reporting company
¨
Emerging growth company
ý   
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
As of December 11, 2017, there were 9,326,098 shares of the registrant’s Class A common stock and 41,255,576 shares of the registrant’s Class B common stock, each with a par value of $0.001 per share, outstanding.
 



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 



ii



PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.
MONGODB, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
 
October 31, 2017
 
January 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
242,745

 
$
69,305

Short-term investments
45,810

 
47,195

Accounts receivable, net of allowance for doubtful accounts of $1,456 and $958 as of October 31, 2017 and January 31, 2017, respectively
35,233

 
31,340

Deferred commissions
9,850

 
7,481

Prepaid expenses and other current assets
5,221

 
3,131

Total current assets
338,859

 
158,452

Property and equipment, net
4,430

 
4,877

Goodwill
1,700

 
1,700

Acquired intangible assets, net
1,848

 
2,511

Deferred tax assets
102

 
114

Other assets
7,056

 
6,778

Total assets
$
353,995

 
$
174,432

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
3,147

 
$
2,841

Accrued compensation and benefits
10,870

 
11,402

Other accrued liabilities
10,788

 
5,269

Deferred revenue
92,447

 
78,278

Total current liabilities
117,252

 
97,790

Redeemable convertible preferred stock warrant liability

 
1,272

Deferred rent, non-current
973

 
1,058

Deferred tax liability, non-current
259

 
108

Deferred revenue, non-current
22,326

 
15,461

Total liabilities
140,810

 
115,689

Commitments and contingencies (Note 4)


 


Redeemable convertible preferred stock, par value $0.001 per share; no shares authorized, issued or outstanding as of October 31, 2017; 41,234,841 shares authorized as of January 31, 2017; 41,148,282 shares issued and outstanding with aggregate liquidation preference of $345,997 as of January 31, 2017

 
345,257

Stockholders’ equity (deficit):
 
 
 
Class A common stock, par value of $0.001 per share; 1,000,000,000 and 162,500,000 shares authorized as of October 31, 2017 and January 31, 2017, respectively; 9,325,098 and no shares issued and outstanding as of October 31, 2017 and January 31, 2017, respectively
9

 

Class B common stock, par value of $0.001 per share; 100,000,000 and 113,000,000 shares authorized as of October 31, 2017 and January 31, 2017, respectively; 41,341,283 and 13,192,992 shares issued as of October 31, 2017 and January 31, 2017, respectively; 41,241,912 and 13,093,621 shares outstanding as of October 31, 2017 and January 31, 2017, respectively
42

 
13

Additional paid-in capital
632,055

 
62,557

Treasury stock, 99,371 shares as of October 31, 2017 and January 31, 2017
(1,319
)
 
(1,319
)
Accumulated other comprehensive loss
(216
)
 
(364
)
Accumulated deficit
(417,386
)
 
(347,401
)
Total stockholders’ equity (deficit)
213,185

 
(286,514
)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
$
353,995

 
$
174,432

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


MONGODB, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 
 
 
 
 
 
Subscription
$
37,885

 
$
23,805

 
$
99,603

 
$
64,018

Services
3,603

 
2,500

 
9,875

 
7,406

Total revenue
41,488

 
26,305

 
109,478

 
71,424

Cost of revenue:
 
 
 
 
 
 
 
Subscription
7,904

 
4,981

 
21,669

 
13,656

Services
3,167

 
2,238

 
8,789

 
7,866

Total cost of revenue
11,071

 
7,219

 
30,458

 
21,522

Gross profit
30,417

 
19,086

 
79,020

 
49,902

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
28,050

 
18,656

 
77,087

 
56,110

Research and development
16,588

 
13,300

 
45,414

 
38,540

General and administrative
9,829

 
6,385

 
26,533

 
19,916

Total operating expenses
54,467

 
38,341

 
149,034

 
114,566

Loss from operations
(24,050
)
 
(19,255
)
 
(70,014
)
 
(64,664
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
227

 
83

 
556

 
221

Interest expense

 
(3
)
 
(8
)
 
(7
)
Other income (expense), net
(57
)
 
(257
)
 
298

 
(158
)
Loss before provision for income taxes
(23,880
)
 
(19,432
)
 
(69,168
)
 
(64,608
)
Provision for income taxes
336

 
103

 
817

 
253

Net loss
$
(24,216
)
 
$
(19,535
)
 
$
(69,985
)
 
$
(64,861
)
Net loss per share attributable to common stockholders, basic and diluted
$
(1.39
)
 
$
(1.57
)
 
$
(4.74
)
 
$
(5.41
)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
17,421,642

 
12,418,879

 
14,749,500

 
11,983,324

  The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


MONGODB, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(24,216
)
 
$
(19,535
)
 
$
(69,985
)
 
$
(64,861
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Unrealized (loss) gain on available-for-sale securities
4

 
2

 
(33
)
 
40

Foreign currency translation adjustments
21

 
(78
)
 
181

 
(40
)
Other comprehensive (loss) income
25

 
(76
)
 
148

 

Total comprehensive loss
$
(24,191
)
 
$
(19,611
)
 
$
(69,837
)
 
$
(64,861
)
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


MONGODB, INC.
CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
(unaudited)
 
Redeemable
Convertible
Preferred Stock
 
Class A and
Class B
Common Stock
 
Additional Paid-In Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders’ Equity (Deficit)
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balances as of January 31, 2017
41,148,282

 
$
345,257

 
13,093,621

 
$
13

 
$
62,557

 
$
(1,319
)
 
$
(364
)
 
$
(347,401
)
 
$
(286,514
)
Exercise of preferred stock warrants
85,170

 
1,171

 

 

 

 

 

 

 

Exercise of common stock warrants

 

 
99,534

 
1

 

 

 

 

 
1

Stock option exercises

 

 
1,242,172

 
1

 
5,470

 

 

 

 
5,471

Repurchase of early exercised options

 

 
(21,721
)
 

 

 

 

 

 
0

Conversion of redeemable convertible preferred stock to common stock
(41,233,452
)
 
(346,428
)
 
26,953,404

 
27

 
346,401

 

 

 

 
346,428

Issuance of common stock upon initial public offering, net

 

 
9,200,000

 
9

 
201,611

 

 

 

 
201,620

Vesting of early exercised stock options

 

 

 

 
950

 

 

 

 
950

Stock-based compensation

 

 

 

 
15,066

 

 

 

 
15,066

Unrealized gain on available-for-sale securities

 

 

 

 

 

 
(33
)
 

 
(33
)
Foreign currency translation adjustment

 

 

 

 

 

 
181

 

 
181

Net loss

 

 

 

 

 

 

 
(69,985
)
 
(69,985
)
Balances as of October 31, 2017

 
$

 
50,567,010

 
$
51

 
$
632,055

 
$
(1,319
)
 
$
(216
)
 
$
(417,386
)
 
$
213,185

 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


MONGODB, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended October 31,
 
2017
 
2016
Cash flows from operating activities
 
 
 
Net loss
$
(69,985
)
 
$
(64,861
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
2,789

 
2,781

Stock-based compensation
15,066

 
16,517

Deferred income taxes
163

 
37

Change in fair value of warrant liability
(101
)
 
(144
)
Change in operating assets and liabilities:
 
 
 
Accounts receivable
(4,653
)
 
4,600

Prepaid expenses and other current assets
(2,120
)
 
(1,435
)
Deferred commissions
(2,217
)
 
(2,344
)
Other long-term assets
(670
)
 
(203
)
Accounts payable
687

 
(272
)
Deferred rent
(85
)
 
(493
)
Accrued liabilities
2,163

 
2,057

Deferred revenue
21,794

 
15,768

Net cash used in operating activities
(37,169
)
 
(27,992
)
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(1,714
)
 
(1,422
)
Proceeds from maturities of marketable securities
74,230

 
114,792

Purchases of marketable securities
(72,879
)
 
(82,036
)
Net cash (used in) provided by investing activities
(363
)
 
31,334

Cash flows from financing activities
 
 
 
Proceeds from exercise of stock options, including early exercised stock options
8,201

 
7,187

Repurchase of early exercised stock options
(149
)
 
(22
)
Proceeds from the initial public offering, net of underwriting discounts and commissions
205,494

 

Proceeds from exercise of redeemable convertible preferred stock warrants
1

 

Payment of initial public offering costs
(2,344
)
 

Net cash provided by financing activities
211,203

 
7,165

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
182

 
42

Net increase in cash, cash equivalents, and restricted cash
173,853

 
10,549

Cash, cash equivalents, and restricted cash, beginning of period
69,412

 
33,313

Cash, cash equivalents, and restricted cash, end of period
$
243,265

 
$
43,862

 
 
 
 
Supplemental Disclosure of Noncash Investing and Financing Activities
 
 
 
Vesting of early exercised stock options
$
950

 
$
707

Costs related to initial public offering included in accounts payable and accrued liabilities
$
1,529

 
$

Conversion of redeemable convertible preferred stock warrant liability to redeemable convertible preferred stock as a result of warrant exercise
$
1,171

 
$

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1.
Organization and Description of Business
MongoDB, Inc. (“MongoDB” or the “Company”) was originally incorporated in the state of Delaware in November 2007 under the name 10Gen, Inc. In August 2013, the Company changed its name to MongoDB, Inc. The Company is headquartered in New York City. The Company develops and sells subscriptions to a modern, general purpose database platform that was built to run applications at scale across a broad range of use cases in the cloud, on-premise or in a hybrid environment. The Company designed its platform to address the performance, scalability, flexibility and reliability demands of modern applications while maintaining the core capabilities of legacy databases. In addition to selling its software, the Company provides post-contract support, training, and consulting services for its offerings. The Company’s fiscal year ends January 31.
Reverse Stock Split
In October 2017, the Company's Board of Directors (the “Board of Directors”) and stockholders approved an amendment to the Company's amended and restated certificate of incorporation effecting a 1-for-2 reverse stock split of the Company's issued and outstanding shares of common stock and accordingly adjusted the conversion rate of the Series A, B, C, D and E redeemable convertible preferred stock to common stock to 1:0.75 and the conversion rate of the Series F redeemable convertible preferred stock to common stock to 1:0.5. The reverse split was effected on October 5, 2017. The par value of the common stock and redeemable convertible preferred stock was not adjusted as a result of the reverse stock split. All issued and outstanding share and per share amounts included in the accompanying unaudited condensed consolidated financial statements have been adjusted to reflect this reverse stock split for all periods presented.
Initial Public Offering
In October 2017, the Company closed its initial public offering (“IPO”) of 9,200,000 shares of its Class A common stock at an offering price of $24.00 per share, including 1,200,000 shares pursuant to the underwriters’ option to purchase additional shares of the Company’s Class A common stock. The Company received net proceeds of $201.6 million, after deducting underwriting discounts and commissions of $15.5 million and offering expenses of $3.9 million. Immediately prior to the closing of the IPO, all 41,232,762 shares of the Company’s then-outstanding redeemable convertible preferred stock automatically converted into 26,952,887 shares of common stock at their respective conversion ratios and the Company reclassified $346.4 million from temporary equity to Class B common stock and additional paid-in capital on its consolidated balance sheet.
Deferred Offering Costs
Deferred offering costs of $3.9 million, consisting of legal, accounting and other fees and costs related to the IPO, were reclassified to additional paid-in capital as a reduction of the proceeds upon the closing of the IPO in October 2017. During the nine months ended October 31, 2017, $2.3 million of the deferred offering costs were paid.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s final prospectus for its IPO dated as of October 18, 2017 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on October 19, 2017.
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying interim condensed consolidated balance sheets as of October 31, 2017, the interim condensed consolidated statements of operations and of comprehensive loss for the three and nine months ended October 31, 2016 and 2017, and the interim condensed consolidated statement of cash flows and the interim condensed consolidated statement of redeemable convertible preferred stock and stockholders’ equity (deficit) for the nine months ended October 31, 2017 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with

6

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position as of October 31, 2017, its results of operations and of comprehensive loss for the three and nine months ended October 31, 2017 and 2016, and its statement of cash flows for the nine months ended October 31, 2017 and 2016 and its statement of redeemable convertible preferred stock and stockholders’ equity (deficit) for the nine months ended October 31, 2017. The financial data and the other financial information disclosed in the notes to these condensed consolidated financial statements related to the three- and nine-month periods are also unaudited. The results of operations for the three and nine months ended October 31, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 2018 or for any other future year or interim period.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, revenue recognition, allowances for doubtful accounts, stock-based compensation, fair value of common stock and redeemable convertible preferred stock warrants prior to the IPO, legal contingencies, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, and accounting for income taxes. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates.
Emerging Growth Company Status
As an “emerging growth company” (“EGC”), the Jump-start Our Business Start-ups Act (“JOBS Act”), allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make the Company’s common stock less attractive to investors.
Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies described in the Company’s final prospectus for its IPO dated as of October 18, 2017 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on October 19, 2017.
Recently Adopted Accounting Pronouncements
Stock-Based Compensation. Starting February 1, 2016, the Company elected to early adopt Accounting Standards Update (“ASU”) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting, which would among other items, provide an accounting policy election to account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures and modifies financial statement presentation of excess tax benefits or deficiencies. The Company elected to account for forfeitures as they occur and therefore, stock-based compensation expense for the three and nine months ended October 31, 2017 and 2016 has been calculated based on actual forfeitures in the unaudited condensed consolidated statements of operations. The cumulative effect of this change increased the accumulated deficit and decreased additional paid-in capital as of February 1, 2016 by $1.5 million. In addition, the effect on the Company’s historical consolidated financial statements was limited to an immaterial cumulative-effect adjustment for previously unrecognized excess tax benefits as a deferred tax asset with an offset to opening accumulated deficit, which was fully offset by a valuation allowance.

7

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Consolidated Statements of Cash Flows. Starting February 1, 2016, the Company elected to early adopt ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU No. 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU No. 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted ASU No. 2016-15 and ASU No. 2016-18 using the retrospective transition method and adjusted the consolidated statements of cash flows in all comparative periods presented.
New Accounting Pronouncements Not Yet Adopted
Stock-Based Compensation. In May 2017, the Financial Accounting Standards Board (“FASB”), issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards, which would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718. The new guidance becomes effective for the Company for the fiscal year ending January 31, 2018, though early adoption is permitted. The Company is currently evaluating whether this standard will have a material impact on its consolidated financial statements.
Goodwill Impairment. In January 2017, the FASB issued ASU 2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard will simplify the measurement of goodwill by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for the Company for the fiscal year ending January 31, 2022, though early adoption is permitted. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. Depending on when the Company loses its EGC status, it may be required to adopt the new lease standard as early as its interim results for the period ending April 30, 2019, but no later than for its annual results for the fiscal year ending January 31, 2021, though early adoption is permitted. The Company is currently evaluating adoption methods and whether this standard will have a material impact on its consolidated financial statements.
Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standard for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount to which an entity expects to be entitled when products are transferred to customers. Subsequently, the FASB has issued the following pronouncements related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, which clarifies narrow aspects of ASC 606 or corrects unintended application of the guidance. The Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20 with ASU 2014-09 (collectively, the “new revenue standard”).

8

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


The Company plans to adopt the new revenue standard using the full retrospective transition method when it becomes effective for the Company. Depending on when the Company loses its EGC status, it may be required to adopt the new revenue standard as early as its annual results for the fiscal year ending January 31, 2019, but no later than for its annual results for the fiscal year ending January 31, 2020, though early adoption is permitted. While the Company continues to assess the potential impacts of the new revenue standard, the Company currently expects unearned subscription revenue to decline significantly upon adoption. Currently, as the Company’s subscription offerings include software term licenses and post-contract customer support for which the Company has not established vendor specific objective evidence (“VSOE”), the entire subscription fee is recognized ratably over the term of the contract. However, under the new revenue standard, the requirement for VSOE for undelivered elements is eliminated and, as a result, the Company is required to identify all deliverables in a contract and recognize revenue based on each deliverable separately. The Company currently expects that the portion related to the software term license deliverable will be recognized upon delivery. The Company is in the process of determining the revenue recognition impact for the other deliverables of each contract. The Company continues to evaluate the effect that the new revenue standard will have on its consolidated financial statements and related disclosures, and preliminary assessments are subject to change.
3.
Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis as of October 31, 2017 and January 31, 2017, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):
 
Fair Value Measurement at October 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
225,756

 
$

 
$

 
$
225,756

Short-term investments:
 
 
 
 
 
 
 
U.S. government treasury securities
45,810

 

 

 
45,810

Total financial assets
$
271,566

 
$

 
$

 
$
271,566

 
Fair Value Measurement at January 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
35,104

 
$

 
$

 
$
35,104

U.S. government treasury securities
20,000

 
 
 
 
 
20,000

Short-term investments:
 
 
 
 
 
 
 
U.S. government treasury securities
47,195

 

 

 
47,195

Total financial assets
$
102,299

 
$

 
$

 
$
102,299

Financial Liability:
 
 
 
 
 
 
 
Redeemable convertible preferred stock warrant liability
$

 
$

 
$
1,272

 
$
1,272

Total financial liability
$

 
$

 
$
1,272

 
$
1,272

The Company utilized the market approach and Level 1 valuation inputs to value its money market mutual funds and U.S. government treasury securities because published net asset values were readily available. As of October 31, 2017 and January 31, 2017, gross unrealized gains and unrealized losses for cash equivalents and short-term investments were not material, and the contractual maturity of all marketable securities was less than one year.

9

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


The Company’s redeemable convertible preferred stock warrants were categorized as Level 3 because they were valued based on unobservable inputs and management’s judgment due to the absence of quoted mark prices, inherent lack of liquidity and the long-term nature of such financial instruments. The Company estimated the fair value of its historical redeemable convertible preferred stock warrant liability using the Black-Scholes pricing model. The significant unobservable inputs used in the fair value measurement of the redeemable convertible preferred stock warrant liability were the fair value of the underlying stock at the valuation date and the estimated term of the warrant. Generally, increases (decreases) in the fair value of the underlying stock and estimated term resulted in a directionally similar impact to the fair value measurement, as recognized in other income (expense), net in the unaudited condensed consolidated statements of operations. As of October 31, 2017, all previously outstanding redeemable convertible preferred stock warrants were fully exercised, as described in Note 6, Warrants.
The following table presents a reconciliation of the redeemable convertible preferred stock warrant liability measured at fair value using significant unobservable inputs (in thousands):
Fair value, beginning balance, January 31, 2017
$
1,272

Issuance of redeemable convertible preferred stock warrants

Conversion of redeemable convertible preferred
stock warrant liability into redeemable convertible preferred stock
(1,171
)
Change in fair value of redeemable convertible preferred stock warrant liability
(101
)
Fair value, ending balance, October 31, 2017
$

4.
Commitments and Contingencies
Operating Leases
The Company has entered into non-cancellable operating leases, primarily related to rental of office space expiring through 2027. The Company recognizes operating lease costs on a straight-line basis over the term of the agreement, taking into account adjustments for market provisions such as free or escalating base monthly rental payments or deferred payment terms such as rent holidays that defer the commencement date of the required payments. The Company may receive renewal or expansion options, leasehold improvement allowances or other incentives on certain lease agreements. Total rent expense related to operating leases was $2.3 million and $1.8 million for the three months ended October 31, 2017 and 2016, respectively, and $6.6 million and $5.0 million for the nine months ended October 31, 2017 and 2016, respectively.
In August 2016, the Company amended an existing irrevocable, standby letter of credit with Silicon Valley Bank for $0.5 million to serve as a security deposit for the Company’s headquarters lease in New York City. The amendment reduced the letter of credit from $1.1 million to $0.5 million. In January 2017, the Company entered into an irrevocable, standby letter of credit with Silicon Valley Bank for $0.4 million to serve as a security deposit for the Company’s lease in Texas. In October 2017, the Company entered into an irrevocable, standby letter of credit with Silicon Valley Bank for $0.2 million to serve as a security deposit for the Company’s lease in Australia. These letters of credit mature at various dates, but do not extend beyond the corresponding lease agreements for which such letter of credit has been obtained.
Other Obligations
The Company has entered into certain other non-cancelable agreements primarily for subscription, marketing services and capacity commitments. During the three and nine months ended October 31, 2017, the Company increased certain capacity commitments with respect to cloud infrastructure services. In addition, in November 2017, the Company entered into an enterprise partnership arrangement with a cloud infrastructure provider and in December 2017, the Company entered into a lease agreement for office space in New York City. Both of these subsequent events include additional commitments that are described further in Note 12, Subsequent Events.

10

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Future minimum lease payments under non-cancelable operating leases and other non-cancelable agreements as of October 31, 2017, were as follows (in thousands):
Year Ending January 31,
Operating Leases
 
Other Obligations
Remainder of 2018
$
2,422

 
$
2,771

2019
8,235

 
3,383

2020
2,879

 
2,525

2021
2,823

 
1279

2022
1,523

 

Thereafter
4,902

 

Total minimum payments
$
22,784

 
$
9,958

Legal Matters
From time to time, the Company has become involved in claims and other legal matters arising in the ordinary course of business. The Company investigates these claims as they arise. Although claims are inherently unpredictable, the Company is currently not aware of any matters that, if determined adversely to the Company, would individually or taken together have a material adverse effect on its business, financial position, results of operations or cash flows.
The Company accrues estimates for resolution of legal and other contingencies when losses are probable and estimable. From time to time, the Company is a party to litigation and subject to claims and threatened claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, breach of contract claims, and other matters.
Although the results of litigation and claims are inherently unpredictable, the Company believes that there was not at least a reasonable possibility that the Company had incurred a material loss with respect to such loss contingencies, as of October 31, 2017 and January 31, 2017, therefore, the Company has not recorded an accrual for such contingencies.
Indemnification
The Company enters into indemnification provisions under its agreements with other companies in the ordinary course of business, including business partners, contractors and parties performing its research and development. Pursuant to these arrangements, the Company agrees to indemnify, hold harmless, and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party as a result of the Company’s activities. The terms of these indemnification agreements are generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the fair value of these agreements is not material. The Company maintains commercial general liability insurance and product liability insurance to offset certain of the Company’s potential liabilities under these indemnification provisions.
The Company has entered into indemnification agreements with each of its directors and executive officers. These agreements require the Company to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with the Company.
5.
Stockholders’ Equity (Deficit)
Redeemable Convertible Preferred Stock
The Company previously issued redeemable convertible preferred stock in one or more series, each with such designations, rights, qualifications, limitations, and restrictions as set forth in the Company’s certificate of incorporation, as in effect prior to the IPO. Immediately prior to the completion of the IPO, as described in Note 1, Organization and Business Description, all shares of redeemable convertible preferred stock then outstanding were automatically converted to 26,952,887 shares of Class B common stock at the respective conversion ratios.

11

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Class A and Class B Common Stock
The Company has two classes of common stock, Class A and Class B. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder. Shares of Class B common stock automatically convert to Class A common stock upon the following: (i) sale or transfer of such share of Class B common stock, subject to specified permitted transfers; (ii) the death of the Class B common stockholder (or nine months after the date of death if the stockholder is one of the founders); and (iii) on the final conversion date, defined as the earlier of (a) the first trading day on or after the date on which the outstanding shares of Class B common stock represent less than 10% of the then-outstanding Class A and Class B common stock; or (b) the date specified by vote of the Board of Directors and the holders of a majority of the outstanding shares of Class B common stock and redeemable convertible preferred stock, voting together as a single class on an as-converted basis. Class A and Class B common stock are referred to as common stock throughout the notes to the unaudited condensed consolidated financial statements, unless otherwise noted.
As of October 31, 2017, the Company had authorized 1,000,000,000 shares and 100,000,000 shares of Class A and Class B common stock, respectively, each par value $0.001 per share, of which 9,325,098 shares of Class A common stock were issued and outstanding and 41,341,283 and 41,241,912 shares of Class B common stock were issued and outstanding, respectively.
6.
Warrants
Redeemable Convertible Preferred Stock Warrants
The Company previously issued warrants to purchase Series E and Series F redeemable convertible preferred stock at an exercise price of $0.01 per share in connection with a software development contract with a customer. During the nine months ended October 31, 2017, warrants to purchase 45,301 shares of Series E redeemable convertible preferred stock and 41,258 shares of Series F redeemable convertible preferred stock were exercised in full, representing the total number of redeemable convertible preferred stock warrants outstanding. Upon the exercise of these warrants, the aggregate fair value of the Series E and Series F redeemable convertible preferred stock warrant liabilities was re-measured to be $1.2 million on the exercise date and was reclassified to redeemable convertible preferred stock. During the three months ended October 31, 2017, these shares of redeemable convertible preferred stock were automatically converted to 53,562 shares of Class B common stock at the respective conversion ratios.
Common Stock Warrants
In April 2013, in connection with a lease agreement and a loan agreement with the same financial institution, the Company issued immediately exercisable and fully vested warrants to purchase an aggregate of 116,258 shares of Class B common stock at an exercise price of $5.72 per share. Furthermore, in April 2013, in connection with a loan agreement with another financial institution, the Company issued immediately exercisable and fully vested warrants to purchase 5,785 shares of Class B common stock at an exercise price of $5.72 per share. These warrants were net exercised in full during the three months ended October 31, 2017 and the Company issued 99,534 shares of Class B common stock upon such exercise. No common stock warrants were outstanding as of October 31, 2017.
7.
Equity Incentive Plans
2008 and 2016 Stock Plan
In 2008 and 2016, the Company adopted the 2008 Stock Incentive Plan (as amended, the “2008 Plan”), and the 2016 Equity Incentive Plan (as amended, the “2016 Plan”), primarily for the purpose of granting stock-based awards to employees, directors, and consultants, including stock options and other stock-based awards including restricted stock units (“RSUs”). With the establishment of the 2016 Plan in December 2016, all shares available for grant under the 2008 Plan were transferred to the 2016 Plan. The Company no longer grants any stock-based awards under the 2008 Plan and any shares underlying stock options canceled under the 2008 Plan will be automatically transferred to the 2016 Plan. Stock options granted under the stock option plans may be either incentive stock options (“ISOs”) or nonstatutory stock options (“NSOs”). ISOs may be granted to employees and NSOs may be granted to employees, directors, or consultants. As of January 31, 2017, the Company made one ISO grant, all other stock options outstanding were granted as NSOs. The exercise prices of the stock option grants must be not less than 100% of the fair value of the common stock on the grant date as determined by the Board of Directors. If, at the date of grant, the optionee owns more than 10% of the total combined voting power of all classes of

12

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


outstanding stock (a “10% stockholder”), the exercise price must be at least 110% of the fair value of the common stock on the date of grant as determined by the Board of Directors. Options granted are exercisable over a maximum term of 10 years from the date of grant or five years from the date of grant for ISOs granted to any 10% stockholder. The Board of Directors or a committee thereof determines the vesting schedule for all equity awards. Stock option awards generally vest over a period of four years with 25% vesting on the one year anniversary of the award and the remainder vesting monthly over the next 36 months of the grantee’s service to the Company. RSU awards generally vest over a period of four years with 25% vesting on the one year anniversary of the award and the remainder vesting quarterly over the next 12 quarters of the grantee’s service to the Company.
Stock Options and Restricted Stock Units
The following table summarizes stock option and RSU award activity for the 2008 and 2016 Plans (in thousands, except share and per share data and years):
 
 
 
Options Outstanding
 
Shares
Available
for Grant
 
Shares
 
Weighted-
Average
Exercise
Price Per
Share
 
Weighted-
Average
Remaining
Contractual
Term
(In Years)
 
Aggregate
Intrinsic
Value
Balance - January 31, 2017
678,260

 
11,090,597

 
$
6.47

 
8.2
 
$
21,717

Authorized
3,000,000

 

 

 
 
 
 
Options granted
(3,596,525
)
 
3,596,525

 
10.57

 
 
 
 
Options exercised

 
(1,242,172
)
 
7.54

 
 
 
 
Early exercised shares repurchased
21,721

 

 

 
 
 
 
Options forfeited and expired
669,623

 
(669,623
)
 
7.49

 
 
 
 
RSUs granted
(54,550
)
 
 
 
 
 
 
 
 
Balance - October 31, 2017
718,529

 
12,775,327

 
7.56

 
8.0
 
292,772

Options vested and exercisable - January 31, 2017
 
 
4,344,092

 
6.21

 
7.3
 
9,875

Options vested and exercisable - October 31, 2017
 
 
5,011,187

 
$
6.29

 
6.8
 
$
121,224

During the three months ended October 31, 2017, the Company granted 29,550 RSUs to employees with a grant date fair value of $0.7 million. During the nine months ended October 31, 2017, the Company granted 54,550 RSUs with a total grant date fair value of $0.9 million. No RSUs were vested, forfeited or canceled as of October 31, 2017. No RSUs were granted during the three and nine months ended October 31, 2016.
2016 China Stock Appreciation Rights Plan
In April 2016, the Company adopted the 2016 China Stock Appreciation Rights Plan (as amended, the “China SAR Plan”) for its employees in China. For grants made prior to the IPO, the China SAR Plan included a service vesting condition and a performance vesting condition. The service vesting condition is generally over four years with 25% vesting on the one year anniversary of the award and the remainder vesting monthly over the next 36 months of the grantee’s service to the Company. The performance vesting condition is defined as the Company’s common stock being publicly traded (a qualifying liquidity event). The China SAR Plan units are cash settled upon exercise and will be paid as a cash bonus equal to the difference between the strike price of the vested plan units and the fair market value of common stock at the end of each reporting period.
For the year ended January 31, 2017, the Company granted 21,500 units of the China SAR Plan at a weighted average strike price of $6.78 per share. The Company granted no units under this plan for the three and nine months ended October 31, 2017. All of the units granted during the year ended January 31, 2017 were still outstanding as of October 31, 2017. During the three and nine months ended October 31, 2017, upon the vesting of 7,958 units, the total expense and liability related to China SAR for three and nine months ended October 31, 2017 was $0.2 million and was recorded as part of the “Accrued compensation and benefits” on the Company’s unaudited condensed consolidated balance sheet. The Company did not recognize any compensation expense related to the China SAR Plan prior to October 18, 2017 because the

13

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Company had determined the performance conditions, with respect to the occurrence of a qualifying liquidity event, were not probable until the successful IPO.
2017 Employee Stock Purchase Plan
In October 2017, the Board of Directors adopted, and stockholders approved, the 2017 Employee Stock Purchase Plan (“ESPP”). A total of 995,000 shares of the Company’s Class A common stock have been initially authorized for issuance under the 2017 ESPP. Subject to any plan limitations, the 2017 ESPP allows eligible employees to contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of the Company’s Class A common stock at a discounted price per share. Except for the initial offering period, the ESPP provides for separate six-month offering periods. The initial offering period will run from October 18, 2017 through June 15, 2018.
Unless otherwise determined by the Board of Directors, the Company’s Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is the lesser of (1) 85% of the fair market value of the Company’s Class A common stock on the first trading day of the offering period, which for the initial offering period is the price at which shares of the Company’s Class A common stock were first sold to the public, or (2) 85% of the fair market value of the Company’s Class A common stock on the last trading day of the offering period.
During the three and nine months ended October 31, 2017, no shares of Class A common stock were purchased under the 2017 ESPP. The total expense related to the 2017 ESPP for three and nine months ended October 31, 2017 was $0.1 million.
Stock Option Repricing
On April 13, 2016, the Company amended all then-current employee and active non-employee stock options with an exercise price greater than $6.50 per share that remained outstanding and unexercised on such date to reprice their respective exercise prices to $6.50 per share, the fair market value of the Company’s common stock as of April 13, 2016, as determined by the Board of Directors. Pursuant to this repricing, options to purchase 6,898,736 shares of common stock were repriced, including options to purchase 3,303,786 shares of common stock held by the Company’s executive officers. The Company determined the total incremental compensation expense related to the repriced awards was $10.7 million, of which $0.6 million was recorded in both the three months ended October 31, 2017 and 2016, respectively, and $1.8 million and $4.9 million in the nine months ended October 31, 2017 and 2016, respectively.
Early Exercise of Stock Options
The Company allows employees and directors to exercise options granted prior to vesting. The unvested shares are subject to lapsing repurchase rights upon termination of employment. For early exercised stock options under the 2008 Plan, the repurchase price is at the original purchase price. For early exercised stock options under the 2016 Plan, the repurchase price is the lower of (i) the then-current fair market value of the common stock on the date of repurchase, and (ii) the original purchase price. The proceeds initially are recorded in other current and noncurrent liabilities from the early exercise of stock options and reclassified to common stock and paid-in capital as the repurchase right lapses.
For the three months ended October 31, 2017 and 2016, the Company issued common stock of 99,618 and 21,506 shares, respectively, for stock options exercised prior to vesting. For the nine months ended October 31, 2017 and 2016, the Company issued common stock of 358,380 and 202,973 shares, respectively, for stock options exercised prior to vesting. For the three months ended October 31, 2017 and 2016, we repurchased 11,362 and 3,437 shares, respectively, of common stock related to unvested stock options at the original exercise price due to the termination of employees. For the nine months ended October 31, 2017 and 2016, we repurchased 21,721 and 3,516 shares, respectively, of common stock related to unvested stock options at the original exercise price due to the termination of employees. As of October 31, 2017 and January 31, 2017, 311,710 and 118,059 shares held by employees and directors were subject to potential repurchase at an aggregate price of $2.4 million and $0.8 million, respectively.
Determination of Fair Value
The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by the fair value of the Company’s common stock, as well as assumptions regarding a number of complex and subjective variables. The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options, , which requires the use of assumptions including actual and projected employee stock option exercise behaviors, expected price volatility of the Company’s common stock, the risk-free interest rate and expected dividends. Each of these inputs is subjective and generally requires significant judgment to determine.

14

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Fair Value of Common Stock. Prior to the IPO, the fair value of common stock underlying the stock options had historically been determined by the Board of Directors, with input from the Company’s management. The Board of Directors previously determined the fair value of the common stock at the time of grant of the options by considering a number of objective and subjective factors, including valuations of comparable companies, sales of redeemable convertible preferred stock, sales of common stock to unrelated third parties, operating and financial performance, the lack of liquidity of the Company’s capital stock, and general and industry-specific economic outlook. Subsequent to the IPO, the fair value of the underlying common stock is determined by the closing price, on the date of grant, of the Company’s Class A common stock, which is traded publicly on the NASDAQ Stock Market.
Expected Term. The expected term represents the period that stock-based awards are expected to be outstanding. For option grants that are considered to be “plain vanilla,” the Company determines the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options. For other option grants, the Company estimates the expected term using historical data on employee exercises and post-vesting employment termination behavior taking into account the contractual life of the award.
Expected Volatility. Since the Company has limited trading history of its common stock, the expected volatility is derived from the average historical stock volatilities of several unrelated public companies within the Company’s industry that the Company considers to be comparable to its own business over a period equivalent to the expected term of the stock option grants.
Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.
Dividend Rate. The expected dividend is assumed to be zero as the Company has never paid dividends and has no current plans to do so.
The fair value of stock options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Expected term (in years)
5.97 - 6.11
 
5.91 - 6.08
 
5.85 - 6.20
 
5.77 - 6.99
Expected volatility
44.6% - 45.7%
 
41.4% - 41.5%
 
41.9% - 45.7%
 
41.4% - 42.5%
Risk-free interest rate
1.8% - 2.1%
 
1.4 %
 
1.8% - 2.1%
 
1.2% - 1.5%
Dividend yield
0%
 
0%
 
0%
 
0%
The fair value of the purchase rights granted under the 2017 ESPP was estimated on the first day of the offering period using the Black-Scholes option-pricing model with the following assumptions:
 
Three Months Ended October 31,
 
2017
Expected term (in years)
0.67 - 0.7
Expected volatility
23% - 24%
Risk-free interest rate
1.2%
Dividend yield
0%

15

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Stock-Based Compensation Expense
Total stock-based compensation expense recognized in the Company’s unaudited condensed consolidated statements of operations is as follows (in thousands):
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Cost of revenue—subscription

$183

 

$131

 

$503

 

$425

Cost of revenue—services
123

 
70

 
292

 
397

Sales and marketing
1,704

 
1,095

 
4,400

 
4,346

Research and development
1,505

 
1,206

 
4,072

 
4,518

General and administrative
2,184

 
1,732

 
5,799

 
6,831

Total stock-based compensation expense
$
5,699

 
$
4,234

 
$
15,066

 
$
16,517

8.
Net Loss per Share Attributable to Common Stockholders
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company considered all series of redeemable convertible preferred stock to have been participating securities as the holders were entitled to receive non-cumulative dividends on a pari passu basis in the event that a dividend was paid on common stock. Under the two-class method, the net loss attributable to common stockholders is not allocated to the redeemable convertible preferred stock as the holders of redeemable convertible preferred stock do not have a contractual obligation to share in losses.
Under the two-class method, basic net loss per share attributable to common stockholders is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted net loss per share attributable to common stockholders is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, redeemable convertible preferred stock, stock options to purchase common stock, early exercised stock options, and warrants to purchase redeemable convertible preferred stock and common stock are considered common shares equivalents, but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. Basic and diluted net loss per share was the same for each period presented, as the inclusion of all potential common shares outstanding would have been antidilutive.
The rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, except with respect to voting. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Net loss attributable to common stockholders
$
(24,216
)
 
$
(19,535
)
 
$
(69,985
)
 
$
(64,861
)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted
17,421,642

 
12,418,879

 
14,749,500

 
11,983,324

Net loss per share attributable to common stockholders, basic and diluted
$
(1.39
)
 
$
(1.57
)
 
$
(4.74
)
 
$
(5.41
)

16

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


The following weighted-average outstanding potentially dilutive common shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because the impact of including them would have been antidilutive:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Redeemable convertible preferred stock (as converted)
24,316,192

 
25,853,450

 
26,045,352

 
25,853,450

Redeemable convertible preferred stock warrants (as converted)
1,339

 
54,604

 
30,122

 
54,604

Common stock warrants
116,485

 
122,043

 
120,190

 
122,043

Stock options to purchase Class B common stock
9,321,627

 
11,220,176

 
9,783,945

 
10,736,027

Stock options to purchase Class A common stock
3,258,405

 

 
2,207,524

 

Early exercised stock options
318,240

 
117,487

 
236,231

 
67,528

9.
Income Taxes
The Company recorded a provision for income taxes of $0.3 million and $0.1 million for the three months ended October 31, 2017 and 2016, respectively and $0.8 million and $0.3 million for the nine months ended October 31, 2017 and 2016, respectively. The provision for income taxes was primarily due to foreign taxes.
The Company assesses uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainties in Tax. As of October 31, 2017, the Company’s net unrecognized tax benefits totaled $5.2 million, none of which would impact the Company’s effective tax rate if recognized. The Company anticipates that the amount of reasonably possible unrecognized tax benefits that could decrease over the next 12 months due to the expiration of certain statutes of limitations and settlement of tax audits is not material to the Company’s unaudited condensed consolidated financial statements.
10.
Segments
The Company operates its business as one operating segment as it only reports financial information on an aggregate and consolidated basis to the Chief Executive Officer, who is the Company’s chief operating decision maker. The following table sets forth the Company’s total revenue by geographic area based on the customers’ location (in thousands):
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
Americas
$
28,045

 
$
17,931

 
$
74,965

 
$
48,617

Europe
11,418

 
7,543

 
30,340

 
20,616

Asia Pacific
2,025

 
831

 
4,173

 
2,191

Total
$
41,488

 
$
26,305

 
$
109,478

 
$
71,424

Customers located in the United States accounted for 64%, 65%, 65% and 65% of total revenue for the three months ended October 31, 2017 and 2016 and the nine months ended October 31, 2017 and 2016, respectively. Customers located in the United Kingdom accounted for 11%, 10%, 11% and 11% of total revenue for the three months ended October 31, 2017 and 2016 and the nine months ended October 31, 2017 and 2016, respectively. No other country accounted for 10% or more of revenue for the periods presented.
As of October 31, 2017 and January 31, 2017, substantially all of the Company’s long-lived assets were located in the United States.
11.
Related Party Transactions
All contracts with related parties are executed in ordinary course of business. There were no material related party transactions in the three and nine months ended October 31, 2017 and 2016. As of October 31, 2017 and January 31, 2017 , there were no material amounts payable to or amounts receivable from related parties.

17

MONGODB, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


12.
Subsequent Events
In November 2017, the Company entered into an enterprise partnership arrangement with a cloud infrastructure provider that includes a non-cancelable commitment of $36.0 million over the next three years, inclusive of capacity commitments that existed as of October 31, 2017 of approximately $6.7 million.
In December 2017, the Company entered into a lease agreement for 106,230 rentable square feet of office space (the “Premises”) to accommodate its growing employee base in New York City. The Company expects delivery of the Premises on January 1, 2018 to commence renovations of the Premises and expects to complete the renovations and vacate its current office space prior to the expiration of its existing lease in December 2018. Total estimated aggregate base rent payments over the initial 12-year term of the lease are $87.9 million, with payments beginning 18 months after delivery of the Premises.



18


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unless the context otherwise indicates, references in this report to the terms “MongoDB,” “the Company,” “we,” “our” and “us” refer to MongoDB, Inc., its divisions and its subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the 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 January 31, 2017 included in the final prospectus for our initial public offering (“IPO”) dated as of October 18, 2017 and filed with the Securities and Exchange Commission (“SEC”), pursuant to Rule 424(b)(4) on October 19, 2017 (the “October 2017 Prospectus”).
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other filings with the SEC. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Our corporate website is located at www.mongodb.com. We make available free of charge, on or through our corporate website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing such reports to, the SEC. Information contained on our corporate website is not part of this Quarterly Report on Form 10-Q or any other report filed with or furnished to the SEC.
Overview
MongoDB is the leading modern, general purpose database platform. Our platform unleashes the power of software and data for developers and the applications they build. Software applications are redefining how organizations across industries engage with their customers, operate their businesses and compete with each other. A database is at the heart of every software application. As a result, selecting a database is a highly strategic decision that directly affects developer productivity, application performance and organizational competitiveness. We built our platform to run applications at scale across a broad range of use cases in the cloud, on-premise or in a hybrid environment. Our platform addresses the performance, scalability, flexibility and reliability demands of modern applications while maintaining the core capabilities of legacy databases. This allows software developers to build or modernize applications quickly and intuitively, making developers more productive and giving their organizations a competitive advantage.
We generate revenue primarily from sales of subscriptions, which accounted for 91% and 90% of our total revenue for the nine months ended October 31, 2017 and 2016, respectively. Our primary subscription package is MongoDB Enterprise Advanced, which represented 68% and 71% of our subscription revenue for the nine months ended October 31, 2017 and 2016, respectively. MongoDB Enterprise Advanced is our comprehensive offering for enterprise customers that can be run in the cloud, on-premise or in a hybrid environment, and includes our proprietary database server, enterprise management capabilities, our graphical user interface, analytics integrations, technical support and a commercial license to our platform.
Many of our enterprise customers initially get to know our software by using Community Server, which is our free-to-download version of our database that includes the core functionality developers need to get started with MongoDB without all the features of our commercial platform. As a result, our direct sales prospects are often familiar with our platform and may have already built applications using our technology. We sell subscriptions directly through our field and inside sales teams, as well as indirectly through channel partners. Our subscription offerings are generally priced on a per server basis, subject to a per server RAM limit. The majority of our subscription contracts are one year in duration and invoiced upfront, although a growing number of our customers are entering into multi-year subscriptions. When we enter into multi-year subscriptions, we typically invoice the customer on an annual basis.

19


We introduced MongoDB Atlas in June 2016. MongoDB Atlas is our cloud-hosted database-as-a-service (“DBaaS”) offering that includes comprehensive infrastructure and management of Community Server. It represented 1% of our total revenue for the three months ended October 31, 2016 and increased to 8% of our total revenue for the three months ended October 31, 2017. MongoDB Atlas is consumption-based and charged monthly to the customer based on usage. Given our platform has been downloaded from our website more than 30 million times since February 2009 and over 10 million times in the last 12 months alone, our initial growth strategy for MongoDB Atlas is to convert developers and their organizations who are already using Community Server to become customers of MongoDB Atlas and enjoy the benefits of a managed offering.
We also generate revenue from services, which consist primarily of fees associated with consulting and training services. Revenue from services accounted for 9% and 10% of our total revenue for the nine months ended October 31, 2017 and 2016, respectively. We expect to continue to invest in our services organization as we believe it plays an important role in accelerating our customers’ realization of the benefits of our platform, which helps drive customer retention and expansion.
We believe the market for our offerings is large and growing, and we have experienced rapid growth. We have made substantial investments in developing our platform and expanding our sales and marketing footprint and intend to continue to invest heavily to grow our business to take advantage of our market opportunity rather than optimizing for profitability or cash flow in the near term.
Key Factors Affecting Our Performance
Growing Our Customer Base
We are intensely focused on continuing to grow our customer base. We have invested, and expect to continue to invest, heavily in our sales and marketing efforts and developer community outreach, which are critical to driving customer acquisition. As of October 31, 2017, we had over 4,900 customers across a wide range of industries and in 90 countries, compared to over 2,600 customers as of October 31, 2016. All affiliated entities are counted as a single customer. As of October 31, 2017, we had over 1,400 customers that were sold through our direct sales force and channel partners, as compared to over 1,150 such customers as of October 31, 2016. These customers, which we refer to as our Direct Customers, accounted for 91% and 95% of our subscription revenue for the nine months ended October 31, 2017 and the fiscal year ended January 31, 2017, respectively. We are also focused on increasing the number of MongoDB Atlas customers, which was over 2,600 as of October 31, 2017, just 16 months since its launch.
Increasing Adoption of MongoDB Atlas
In June 2016, we introduced MongoDB Atlas. This hosted cloud offering is an important part of our run-anywhere strategy and allows us to generate revenue from Community Server, converting users who do not need all of the benefits of MongoDB Enterprise Advanced to customers. To accelerate adoption of this DBaaS offering, earlier in 2017, we introduced tools to easily migrate existing users of our Community Server offering to MongoDB Atlas. We have also expanded our introductory offerings for MongoDB Atlas, including a free tier, which provides limited processing power and storage in order to drive usage and adoption of MongoDB Atlas among developers. We have invested significantly in MongoDB Atlas and our ability to drive adoption of MongoDB Atlas is a key component of our growth strategy.
Retaining and Expanding Revenue from Existing Customers
The economic attractiveness of our subscription-based model is driven by customer renewals and increasing existing customer subscriptions over time, referred to as land-and-expand. We believe that there is a significant opportunity to drive additional sales to existing customers, and expect to invest in sales and marketing and customer success personnel and activities to achieve additional revenue growth from existing customers. If an application grows and requires additional capacity, our customers increase their subscriptions to our platform. In addition, our customers expand their subscriptions to our platform as they migrate additional existing applications or build new applications, either within the same department or in other lines of business or geographies. Also, as customers modernize their IT infrastructure and move to the cloud, they may migrate applications from legacy databases. Our goal is to increase the number of customers that standardize on our database within their organization, which can include offering centralized internal support or providing MongoDB-as-a-service internally. Over time, the average subscription amount for our Direct Customers has increased. In addition, self-service customers have begun to increase their consumption of our products, particularly MongoDB Atlas.

20


We monitor annualized recurring revenue (“ARR”) to help us measure our subscription performance. We define ARR as the subscription revenue we would contractually expect to receive from customers over the following 12 months assuming no increases or reductions in their subscriptions. ARR excludes self service products, including MongoDB Atlas not sold on a commitment basis, and professional services. For self-service customers, we measure their annualized monthly recurring revenue (“MRR”), which is calculated by annualizing their usage of our self-serve products in the prior 30 days and assuming no increases or reductions in their usage. The number of customers with $100,000 or greater in ARR and annualized MRR was 110, 164, 246 and 320 as of January 31, 2015, 2016 and 2017 and October 31, 2017, respectively. Our ability to increase sales to existing customers will depend on a number of factors, including customers’ satisfaction or dissatisfaction with our products and services, competition, pricing, economic conditions or overall changes in our customers’ spending levels.
Components of Results of Operations
Revenue
Subscription Revenue. Our subscription revenue is comprised of term licenses and hosted as‑a‑service solutions. Subscriptions to term licenses include technical support and access to new software versions on a when‑and‑if available basis. Revenue from our term licenses is recognized ratably and is typically billed annually in advance. Revenue from our hosted as‑a‑service solutions is primarily generated on a usage basis and is billed either in arrears or paid up front.
Services Revenue. Services revenue is comprised of consulting and training services and is recognized over the period of delivery of the applicable services. We recognize revenue from services agreements as services are delivered if sold on a stand‑alone basis and ratably over the contractual period if sold as a bundled element along with our subscriptions.
We expect our 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, delivery of professional services, the impact of significant transactions and seasonality of or fluctuations in usage for our consumption‑based customers. Certain of our services agreements are sold as a bundled element along with our subscriptions. In those cases, when services commence later than the start date of the subscription, as long as all other revenue recognition criteria have been met, we record a cumulative catch up of revenue that would have been recognized over the period from the beginning of the subscription term until the commencement of services.
Cost of Revenue
Cost of Subscription Revenue. Cost of subscription revenue primarily includes personnel costs, including salaries, bonuses and benefits, and stock‑based compensation, for employees associated with our subscription arrangements principally related to technical support and allocated shared costs, as well as depreciation and amortization. Our cost of subscription revenue for our hosted as‑a‑service solutions includes third‑party cloud infrastructure and overhead. We expect our cost of subscription revenue to increase in absolute dollars as our subscription revenue increases and, depending on the results of MongoDB Atlas, our cost of subscription revenue may increase as a percentage of subscription revenue as well.
Cost of Services Revenue. Cost of services revenue primarily includes personnel costs, including salaries and benefits, and stock‑based compensation, for employees associated with our professional service contracts, travel costs and allocated shared costs, as well as depreciation and amortization. We expect our cost of services revenue to increase in absolute dollars as our services revenue increases.
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 products and services, the mix of products sold, transaction volume growth and the mix of revenue between subscriptions and services. We expect our gross margin to fluctuate over time depending on the factors described above and, to the extent MongoDB Atlas revenue increases as a percentage of total revenue, our gross margin may decline as a result of the associated hosting costs of MongoDB Atlas.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development and general and administrative expenses. Personnel costs are the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities, information technology and employee benefit costs.

21


Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, sales commission and benefits, bonuses and stock‑based compensation. These expenses also include costs related to marketing programs, travel‑related expenses and allocated overhead. Marketing programs consist of advertising, events, corporate communications, and brand‑building and developer‑community activities. We expect our sales and marketing expense to increase in absolute dollars over time as we expand our sales force and increase our marketing resources, expand into new markets and further develop our channel program.
Research and Development. Research and development expense consists primarily of personnel costs, including salaries, bonuses and benefits, and stock‑based compensation. It also includes amortization associated with intangible acquired assets and allocated overhead. We expect our research and development expenses to continue to increase in absolute dollars, as we continue to invest in our platform and develop new products.
General and Administrative. General and administrative expense consists primarily of personnel costs, including salaries, bonuses and benefits, and stock‑based compensation for administrative functions including finance, legal, human resources and external legal and accounting fees, as well as allocated overhead. We expect general and administrative expense to increase in absolute dollars over time as we continue to invest in the growth of our business and incur the costs of compliance associated with being a publicly traded company.
Other Income (Expense), net
Other income (expense), net consists primarily of interest income and gains and losses from foreign currency transactions.
Provision for Income Taxes
Provision for income taxes consists primarily of state income taxes in the United States and income taxes in certain foreign jurisdictions in which we conduct business. As of January 31, 2017, we had net operating loss carryforwards (“NOLs”) for federal, state and Irish income tax purposes of $175.6 million, $138.6 million and $119.3 million, respectively, which begin to expire in the year ending January 31, 2028 for federal purposes and in the year ending January 31, 2021 for state purposes. Ireland allows NOLs to be carried forward indefinitely. Under Section 382 of the U.S. Internal Revenue Code of 1986, a corporation that experiences an “ownership change” is subject to a limitation on its ability to utilize its pre‑change NOLs to offset future taxable income. In April 2017, we completed an analysis under Section 382 to evaluate whether there are any limitations on our NOLs through January 31, 2017 and concluded that the prior ownership changes do not limit the utilization of the NOLs before they expire, assuming sufficient future federal and state taxable income. However, it is possible that we could experience a future ownership change under Section 382 or other regulatory changes, such as suspension on the use of the NOLs, that could result in the expiration of our NOLs or otherwise cause them to be unavailable to offset future federal and state taxable income.
Highlights for the Three and Nine Months Ended October 31, 2017
For the three and nine months ended October 31, 2017, our total revenue was $41.5 million and $109.5 million, respectively, as compared to $26.3 million and $71.4 million for the three and nine months ended October 31, 2016, respectively. Our net loss was $24.2 million and $70.0 million for the three and nine months ended October 31, 2017, respectively, and $19.5 million and $64.9 million for the three and nine months ended October 31, 2016, respectively. Our operating cash flow was $(37.2) million and $(28.0) million for the nine months ended October 31, 2017 and 2016, respectively. Our free cash flow was $(38.9) million and $(29.4) million for the nine months ended October 31, 2017 and 2016, respectively. See the section titled “Liquidity and Capital Resources—Non-GAAP Free Cash Flow” below.
In October 2017, we closed our IPO of 9,200,000 shares of our Class A common stock at an offering price of $24.00 per share, including 1,200,000 shares pursuant to the underwriters’ option to purchase additional shares of our Class A common stock, resulting in net proceeds to us of $201.6 million, after deducting underwriting discounts and commissions of $15.5 million and offering expenses of $3.9 million.

22


Results of Operations
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
 
(unaudited, dollars in thousands)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Subscription
$
37,885

 
$
23,805

 
$
99,603

 
$
64,018

Services
3,603

 
2,500

 
9,875

 
7,406

Total revenue
41,488

 
26,305

 
109,478

 
71,424

Cost of revenue(1):
 
 
 
 
 
 
 
Subscription
7,904

 
4,981

 
21,669

 
13,656

Services
3,167

 
2,238

 
8,789

 
7,866

Total cost of revenue
11,071

 
7,219

 
30,458

 
21,522

Gross profit
30,417

 
19,086

 
79,020

 
49,902

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing(1)   
28,050

 
18,656

 
77,087

 
56,110

Research and development(1)   
16,588

 
13,300

 
45,414

 
38,540

General and administrative(1)   
9,829

 
6,385

 
26,533

 
19,916

Total operating expenses
54,467

 
38,341

 
149,034

 
114,566

Loss from operations
(24,050
)
 
(19,255
)
 
(70,014
)
 
(64,664
)
Other income (expense), net
170

 
(177
)
 
846

 
56

Loss before provision for income taxes
(23,880
)
 
(19,432
)
 
(69,168
)
 
(64,608
)
Provision for income taxes
336

 
103

 
817

 
253

Net loss
$
(24,216
)
 
$
(19,535
)
 
$
(69,985
)
 
$
(64,861
)
 
(1) 
Includes stock‑based compensation expense as follows:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
 
(unaudited, dollars in thousands)
Cost of revenue—subscription
$
183

 
$
131

 
$
503

 
$
425

Cost of revenue—services
123

 
70

 
292

 
397

Sales and marketing
1,704

 
1,095

 
4,400

 
4,346

Research and development
1,505

 
1,206

 
4,072

 
4,518

General and administrative
2,184

 
1,732

 
5,799

 
6,831

Total stock‑based compensation expense
$
5,699

 
$
4,234

 
$
15,066

 
$
16,517



23


 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2017
 
2016
 
2017
 
2016
 
(unaudited, dollars in thousands)
Percentage of Revenue Data:
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Subscription
91
 %
 
90
 %
 
91
 %
 
90
 %
Services
9
 %
 
10
 %
 
9
 %
 
10
 %
Total revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Cost of revenue:
 
 
 
 
 
 
 
Subscription
19
 %
 
19
 %
 
20
 %
 
19
 %
Services
8
 %
 
9
 %
 
8
 %
 
11
 %
Total cost of revenue
27
 %
 
28
 %
 
28
 %
 
30
 %
Gross profit
73
 %
 
72
 %
 
72
 %
 
70
 %
Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
68
 %
 
71
 %
 
70
 %
 
79
 %
Research and development
40
 %
 
51
 %
 
41
 %
 
54
 %
General and administrative
24
 %
 
24
 %
 
24
 %
 
28
 %
Total operating expenses
132
 %
 
146
 %
 
135
 %
 
161
 %
Loss from operations
(58
)%
 
(73
)%
 
(64
)%
 
(91
)%
Other income (expense), net
 %
 
(1
)%
 
1
 %
 
 %
Loss before provision for income taxes
(58
)%
 
(74
)%
 
(63
)%
 
(91
)%
Provision for income taxes
1
 %
 
 %
 
1
 %
 
 %
Net loss
(59
)%
 
(74
)%
 
(64
)%
 
(91
)%
Comparison of the Three Months Ended October 31, 2017 and 2016
Revenue
 
Three Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Subscription
$
37,885

 
$
23,805

 
$
14,080

 
59
%
Services
3,603

 
2,500

 
1,103

 
44
%
Total revenue
$
41,488

 
$
26,305

 
$
15,183

 
58
%
Total revenue growth reflects increased demand for our platform and related services. Subscription revenue increased by $14.1 million primarily due to $10.2 million from sales to new customers, which included the impact of the increased adoption of MongoDB Atlas. The remainder of the increase in subscription revenue resulted from sales to our existing customers. The increase in services revenue was driven primarily by an increase in sales of professional services to new customers and revenue recognized for previously sold service agreements sold as a bundled element with subscriptions.

24


Cost of Revenue, Gross Profit and Gross Margin Percentage
 
Three Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Subscription cost of revenue
$
7,904

 
$
4,981

 
$
2,923

 
59
%
Services cost of revenue
3,167

 
2,238

 
929

 
42
%
Total cost of revenue
11,071

 
7,219

 
3,852

 
53
%
Gross profit
$
30,417

 
$
19,086

 
$
11,331

 
59
%
Gross margin
73
%
 
73
%
 
 
 
 
Subscription
79
%
 
79
%
 
 
 
 
Services
12
%
 
10
%
 
 
 
 
The increase in subscription cost of revenue was primarily due to a $1.9 million increase in third‑party cloud infrastructure costs, primarily associated with the increased adoption of MongoDB Atlas, and a $0.9 million increase in personnel costs associated with increased headcount in our support organization. The increase in services cost of revenue was primarily due to higher headcount in our services organization. Total headcount in our support and services organizations increased 22% as of October 31, 2017 compared to October 31, 2016.
Gross margin remained flat at 73% during the three months ended October 31, 2017 compared to the prior-year period.
Operating Expenses
Sales and Marketing
 
Three Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Sales and marketing
$
28,050

 
$
18,656

 
$
9,394

 
50
%
The increase in sales and marketing expense was primarily due to an increase in personnel costs driven by an increase in our sales and marketing headcount of 51%, from 249 as of October 31, 2016 to 376 as of October 31, 2017.
Research and Development
 
Three Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Research and development
$
16,588

 
$
13,300

 
$
3,288

 
25
%
The increase in research and development expense was primarily driven by an increase in personnel costs as we increased our research and development headcount.
General and Administrative
 
Three Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
General and administrative
$
9,829

 
$
6,385

 
$
3,444

 
54
%
The increase in general and administrative expense was primarily due to an increase in general and administrative personnel headcount, resulting in an increase of $1.9 million in personnel costs, as well as a $0.6 million increase in professional services‑related fees from higher costs of compliance associated with being a publicly traded company.

25


Other Income (Expense), net
 
Three Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Other income (expense), net
$
170

 
$
(177
)
 
$
347

 
196
%
The increase in other income (expense), net was primarily due to an increase in interest income on investments and net gains from foreign currency transactions.
Provision for Income Taxes
 
Three Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Provision for income taxes
$
336

 
$
103

 
$
233

 
226
%
The increase in provision for income taxes was primarily due to an increase in foreign taxes as we continued our global expansion.
Comparison of the Nine Months Ended October 31, 2017 and 2016
Revenue
 
Nine Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Subscription
$
99,603

 
$
64,018

 
$
35,585

 
56
%
Services
9,875

 
7,406

 
2,469

 
33
%
Total revenue
$
109,478

 
$
71,424

 
$
38,054

 
53
%
Total revenue growth reflects increased demand for our platform and related services. Subscription revenue increased by $35.6 million primarily due to $18.2 million from sales to new customers, which included the impact of the increased adoption of MongoDB Atlas. The remainder of the increase in subscription revenue resulted from sales to existing customers. The increase in services revenue was driven primarily by an increase in sales of professional services to new customers.
Cost of Revenue, Gross Profit and Gross Margin Percentage
 
Nine Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Subscription cost of revenue
$
21,669

 
$
13,656

 
$
8,013

 
59
%
Services cost of revenue
8,789

 
7,866

 
923

 
12
%
Total cost of revenue
30,458

 
21,522

 
8,936

 
42
%
Gross profit
$
79,020

 
$
49,902

 
$
29,118

 
58
%
Gross margin
72
%
 
70
 %
 
 
 
 
Subscription
78
%
 
79
 %
 
 
 
 
Services
11
%
 
(6
)%
 
 
 
 
The increase in subscription cost of revenue was primarily due to a $4.5 million increase in third‑party cloud infrastructure costs, primarily associated with the launch of MongoDB Atlas, as well as a $3.0 million increase in personnel costs associated with increased headcount in our support organization. The increase in services cost of revenue was primarily due to higher headcount in our services organization.

26


The increase in gross margin was primarily driven by an increase in services gross margin of 17 percentage points primarily driven by the higher utilization rates of our professional services personnel during the nine months ended October 31, 2017 as compared to the prior-year period.
Operating Expenses
Sales and Marketing
 
Nine Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Sales and marketing
$
77,086

 
$
56,109

 
$
20,977

 
37
%
The increase in sales and marketing expense was primarily due to an increase of $17.0 million in personnel costs, including an increase in commission expense of $3.5 million, driven by an increase in our sales and marketing headcount of 51% from 249 as of October 31, 2016 to 376 as of October 31, 2017. The remainder of the increase was primarily attributable to higher spend on marketing programs.
Research and Development
 
Nine Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Research and development
$
45,414

 
$
38,540

 
$
6,874

 
18
%
The increase in research and development expense was primarily driven by an increase in personnel costs as we increased our research and development headcount.
General and Administrative
 
Nine Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
General and administrative
$
26,533

 
$
19,916

 
$
6,617

 
33
%
The increase in general and administrative expense was primarily due to an increase in general and administrative personnel headcount, resulting in an increase of $5.1 million in personnel costs, as well as a $1.5 million increase in professional services‑related fees from higher costs of compliance associated with being a publicly traded company. These increases in general and administrative expense were partially offset by a decrease of $1.0 million in stock-based compensation expense due to the option repricing we effected in April 2016.
Other Income (Expense), net
 
Nine Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Other income, net
$
846

 
$
56

 
$
790

 
1,411
%
The increase in other income (expense), net was primarily due to an increase in interest income on investments and net gains from foreign currency transactions.

27


Provision for Income Taxes
 
Nine Months Ended October 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(unaudited, dollars in thousands)
Provision for income taxes
$
817

 
$
253

 
$
564

 
223
%
The increase in provision for income taxes was primarily due to an increase in foreign taxes as we continued our global expansion.
Liquidity and Capital Resources
As of October 31, 2017, we had cash and cash equivalents and short‑term investments totaling $288.6 million. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our short‑term investments consist of U.S. government treasury securities.
In October 2017, we closed our IPO of 9,200,000 shares of our Class A common stock at an offering price of $24.00 per share, including 1,200,000 shares pursuant to the underwriters’ option to purchase additional shares of our Class A common stock, resulting in net proceeds to us of $201.6 million, after deducting underwriting discounts and commissions of $15.5 million and offering expenses of $3.9 million. Previously, we financed our operations principally through private placements of our redeemable convertible preferred stock. We have received net proceeds of $345.3 million from the issuance of shares of our redeemable convertible preferred stock. We believe our existing cash and cash equivalents and short‑term investments will be sufficient to fund our operating and capital needs for at least the next 12 months.
We have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and consolidated statements of cash flows. As of October 31, 2017, we had an accumulated deficit of $417.4 million. We expect to continue to incur operating losses and negative cash flows from operations in the future and 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 operation activities, the timing of new subscription introductions, and the continuing market acceptance of our subscriptions and services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. 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, operating results and financial condition would be adversely affected.
The following table summarizes our cash flows for the periods presented:
 
Nine Months Ended October 31,
 
2017
 
2016
 
(unaudited, dollars in thousands)
Net cash used in operating activities
$
(37,169
)
 
$
(27,992
)
Net cash (used in) provided by investing activities
(363
)
 
31,334

Net cash provided by financing activities
$
211,203

 
$
7,165

Non‑GAAP Free Cash Flow
To supplement our unaudited condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we provide investors with the amount of free cash flow, which is a non‑GAAP financial measure. Free cash flow represents net cash used in operating activities less capital expenditures and capitalized software development costs, if any. In the nine months ended October 31, 2017 and 2016, we did not capitalize any software development costs. Free cash flow is a measure used by management to understand and evaluate our liquidity and to generate future operating plans. The exclusion of capital expenditures and amounts capitalized for software development facilitates comparisons of our liquidity on a period‑to‑period basis and excludes items that we do not consider to be indicative of our liquidity. We believe that free cash flow is a measure of liquidity that provides useful information to our management, investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business in the same manner as our management and Board of Directors. Nevertheless, our use of free cash flow has

28


limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Further, our definition of free cash flow may differ from the definitions used by other companies and therefore comparability may be limited. You should consider free cash flow alongside our other GAAP‑based financial performance measures, such as net cash used in operating activities, and our other GAAP financial results. The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP measure, for each of the periods indicated.
 
Nine Months Ended October 31,
 
2017
 
2016
 
(unaudited, dollars in thousands)
Net cash used in operating activities
$
(37,169
)
 
$
(27,992
)
Capital expenditures
(1,714
)
 
(1,422
)
Capitalized software

 

Free cash flow
$
(38,883
)
 
$
(29,414
)
Operating Activities
Cash used in operating activities during the nine months ended October 31, 2017 was $37.2 million primarily driven by our net loss of $70.0 million and was partially offset by non‑cash charges of $15.1 million for stock‑based compensation and $2.8 million for depreciation and amortization. In addition, our cash used in operating activities was further offset by an increase of $21.8 million in deferred revenue resulting from the overall growth of our sales and our expanding customer base, and an increase of $2.2 million in accrued liabilities mainly related to offering costs not yet paid. The change in deferred revenue and accrued liabilities was partially offset by an increase of $2.1 million in prepaid expenses and other current assets, and an increase of $4.7 million in accounts receivable as a result of the overall increase in revenue and deferred revenue.
Cash used in operating activities during the nine months ended October 31, 2016 was $28.0 million primarily driven by our net loss of $64.9 million and was partially offset by non‑cash charges of $16.5 million for stock‑based compensation and $2.8 million for depreciation and amortization. In addition, our cash used in operating activities was further offset by a decrease of $4.6 million in accounts receivable due to collection from customers, and an increase of $15.8 million in deferred revenue resulting from the overall growth of our sales and our expanding customer base. The change in accounts receivable and deferred revenue was partially offset by an increase of $1.4 million in prepaid expenses and other current assets.
Investing Activities
Cash used in investing activities during the nine months ended October 31, 2017 of $0.4 million resulted primarily from the purchase of marketable securities, net of maturities.
Cash provided by investing activities during the nine months ended October 31, 2016 of $31.3 million resulted primarily from net proceeds from sales and maturities of marketable securities.
Financing Activities
Cash provided by financing activities during the nine months ended October 31, 2017 was $211.2 million. This was primarily due to $205.5 million in proceeds from our IPO completed in October 2017.
Cash provided by financing activities during the nine months ended October 31, 2016 was $7.2 million primarily due to proceeds from the exercise of stock options.
Seasonality
We have in the past and expect in the future to experience seasonal fluctuations in our revenue and sales from time to time with the fourth quarter historically being our strongest quarter for new customer sales and renewals as a result of large enterprise buying patterns. Our recent growth and the ratable nature of our subscription revenue make this seasonality less apparent in our overall financial results.

29


Off Balance Sheet Arrangements
As of October 31, 2017, we did not have any relationships with any entities or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off‑balance sheet arrangements or other purposes.
Contractual Obligations and Commitments
During the nine months ended October 31, 2017, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments from those disclosed in our October 2017 Prospectus. See Note 4, Commitments and Contingencies, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. In November 2017, we entered into an enterprise partnership arrangement with a cloud infrastructure provider and in December 2017, we entered into a lease agreement to occupy 106,230 rentable square feet of office space in New York City. See Note 12, Subsequent Events, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
There have been no material changes in our critical accounting policies from those disclosed in our October 2017 Prospectus, under the heading Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
JOBS Act
As an “emerging growth company,” Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of public companies who are required to comply with the effective dates for new or revised accounting standards, which may make comparison of our financial statements to those of other public companies more difficult.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have operations both within the United States and internationally, and we are exposed to market risk in the ordinary course of business.
Interest Rate Risk
Our cash and cash equivalents primarily consist of bank deposits and money market funds, and our short-term investments consist of U.S. government treasury securities. As of October 31, 2017 and January 31, 2017, we had cash, cash equivalents and short-term investments of $288.6 million and $116.5 million, respectively. The carrying amount of our cash equivalents reasonably approximates fair value, due to the short maturities of these instruments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. The effect of a hypothetical 10% increase or decrease in interest rates would not have had a material impact on our historical consolidated financial statements for the n