What changed in Confluent, Inc.'s 10-K — 2023 vs 2024
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Paragraph-level year-over-year comparison of Confluent, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.
+490 added−478 removedSource: 10-K (2025-02-18) vs 10-K (2024-02-21)
Top changes in Confluent, Inc.'s 2024 10-K
490 paragraphs added · 478 removed · 426 edited across 2 sections
- Item 1A. Risk Factors+378 / −365 · 332 edited
- Item 1C. Cybersecurity+112 / −113 · 94 edited
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
332 edited+46 added−33 removed258 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
332 edited+46 added−33 removed258 unchanged
2023 filing
2024 filing
Biggest changeIn addition to the other risks described herein, factors that may affect our results of operations include the following: • changes in our revenue mix as Confluent Cloud’s contribution to subscription revenue increases over time, and related changes in revenue recognition; • changes in actual and anticipated growth rates of our revenue, customers, and key operating metrics, including due to changes in methodology for calculating certain of our key operating metrics; • strategic shifts in focus on growth versus operating efficiency and profitability; • fluctuations in demand for, and our ability to effectively and competitively price, our offering; • fluctuations in usage of Confluent Cloud under usage-based commitments and pay-as-you-go arrangements; • our ability to attract new customers; • our ability to retain our existing customers, particularly large customers, secure renewals of subscriptions and usage-based commitments, as well as the timing of customer renewals or non-renewals, and drive their increased consumption of Confluent Cloud; • customer retention rates and the pricing and quantity of subscriptions renewed, as well as our ability to accurately forecast customer consumption, expansions, and renewals; • downgrades in customer subscriptions or decreased consumption; • customers and potential customers opting for alternative products, including developing their own in-house solutions or opting to use only the free version of our offering; • timing and amount of our investments to expand the capacity of our third-party cloud service providers; 27 Table of Contents • seasonality in sales, customer implementations, results of operations (including Confluent Cloud revenue), and remaining performance obligations, or RPO; • investments in new offerings, features, and functionality; • fluctuations or delays in development, release, or adoption of new features and functionality for our offering; • delays in closing sales, including the timing of renewals, which may result in revenue being pushed into the next quarter, particularly because a large portion of our sales occur toward the end of each quarter; • fluctuations or delays in purchasing decisions by existing or future customers, including due to geopolitical or economic conditions such as inflation or in anticipation of new offerings or enhancements by us or our competitors; • changes in customers’ budgets, consumption, and timing of their budget cycles and purchasing decisions, including due to macroeconomic factors and currency exchange rate fluctuations; • our ability to control costs, including hosting costs associated with Confluent Cloud and our operating expenses, and to realize operating efficiencies in connection with the restructuring actions we commenced in January 2023, or the Restructuring Plan; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions; • timing of hiring personnel for our research and development and sales and marketing organizations; • the amount and timing of non-cash expenses, including stock-based compensation expense and other non-cash charges; • the amount and timing of costs associated with recruiting, educating, and integrating new employees and retaining and motivating existing employees, including in connection with our shift to a consumption-oriented sales model for Confluent Cloud; • the effects of acquisitions and their integration; • general geopolitical or economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate; • fluctuations in foreign currency exchange rates; • the impact of new accounting pronouncements; • changes in revenue recognition policies that impact our subscriptions and services revenue; • changes in regulatory or legal environments that may cause us to incur, among other things, expenses associated with compliance; • the impact of changes in tax laws or judicial or regulatory interpretations of tax laws, which are recorded in the period such laws are enacted or interpretations are issued and may significantly affect the effective tax rate of that period; • health epidemics or pandemics, such as the COVID-19 pandemic; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; and 28 Table of Contents • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our offering.
Biggest changeIn addition to the other risks described herein, factors that have in the past and may in the future affect our results of operations include the following: • changes in our revenue mix as Confluent Cloud’s contribution to subscription revenue increases over time, and related changes in revenue recognition; • changes in actual and anticipated growth rates of our revenue, customers, and key business metrics, including due to changes in methodology for calculating certain of our key business metrics; • strategic shifts in focus on growth versus operating efficiency and profitability; • fluctuations in demand for, and our ability to effectively and competitively price, our offerings; • fluctuations in usage of Confluent Cloud under usage-based commitments and pay-as-you-go arrangements; • our ability to attract new customers; • our ability to retain our existing customers, particularly large customers, secure renewals of subscriptions and usage-based commitments, as well as the timing of customer renewals or non-renewals, and drive their increased consumption of Confluent Cloud; • customer retention rates and the pricing and quantity of subscriptions renewed, as well as our ability to accurately forecast customer consumption, expansions, and renewals; • downgrades in customer subscriptions or decreased consumption; • customers and potential customers opting for alternative products, including developing their own in-house solutions or opting to use only the free version of our offerings; • timing and amount of our investments to expand the capacity of our third-party cloud service providers; • seasonality in sales, customer implementations, and results of operations (including Confluent Cloud revenue); • investments in new offerings, features, and functionality; • fluctuations or delays in development, release, or adoption of new features and functionality for our offerings; 30 Table of Contents • delays in closing sales, including the timing of renewals, which may result in revenue being pushed into the next quarter, particularly because a large portion of our sales occur toward the end of each quarter; • fluctuations or delays in purchasing decisions by existing or future customers, including due to geopolitical or economic conditions such as inflation or in anticipation of new offerings or enhancements by us or our competitors; • changes in customers’ budgets, consumption, and timing of their budget cycles and purchasing decisions, including due to macroeconomic factors and currency exchange rate fluctuations; • our ability to control costs, including hosting costs associated with Confluent Cloud and our operating expenses; • the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions; • timing of hiring personnel for our research and development and sales and marketing organizations; • the amount and timing of non-cash expenses, including stock-based compensation expense and other non-cash charges; • the amount and timing of costs associated with recruiting, educating, and integrating new employees and retaining and motivating existing employees; • the effects of acquisitions and their integration, including our acquisition of WarpStream; • general geopolitical or economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate; • fluctuations in foreign currency exchange rates; • the impact of new accounting pronouncements; • changes in revenue recognition policies that impact our subscriptions and services revenue; • changes in regulatory or legal environments that may cause us to incur, among other things, expenses associated with compliance; • the impact of changes in tax laws or judicial or regulatory interpretations of tax laws, which are recorded in the period such laws are enacted or interpretations are issued and may significantly affect the effective tax rate of that period; • health epidemics or pandemics, such as the COVID-19 pandemic; • changes in the competitive dynamics of our market, including consolidation among competitors or customers; and • significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our offerings. 31 Table of Contents The calculation methodology of our key metrics, including adjustments in methodologies from time to time, may also result in fluctuations in period-over-period results that may not be indicative of our long-term performance or that result in differing interpretations of trends in our business.
Our sales strategy for Confluent Cloud also involves landing customers at low entry points, including starting with our free Confluent Cloud trial and pay-as-you-go, which have no commitments.
Our sales strategy for Confluent Cloud also involves landing customers at low entry points, including starting with our free Confluent Cloud trial and with pay-as-you-go, which have no commitments.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal information privacy laws, health information privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), other similar laws (e.g., wiretapping laws).
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal information privacy laws, health information privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws).
In the ordinary course of our business, we collect, receive, store, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, share, and process sensitive, proprietary, confidential, and regulated information, including personal information, trade secrets, intellectual property, and other business information, that belongs to us or that we may handle on behalf of others such as our customers.
In the ordinary course of our business, we collect, receive, store, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, share, and process sensitive, proprietary, confidential, and regulated information, including personal information, trade secrets, intellectual property, and other business information, that belongs to us or that we handle on behalf of others such as our customers.
Because the source code for any software we contribute to open source projects, including Apache Kafka and Apache Flink, or distribute under open source or source-available licenses is publicly available, our ability to protect our intellectual property rights with respect to such source code may be limited or lost entirely, and we may be limited in our ability to prevent our competitors or others from using such contributed source code.
Because the source code for any software we contribute to open source projects, including Apache Kafka, Apache Flink, and Apache Iceberg, or distribute under open source or source-available licenses is publicly available, our ability to protect our intellectual property rights with respect to such source code may be limited or lost entirely, and we may be limited in our ability to prevent our competitors or others from using such contributed source code.
Historically, we have experienced seasonality in RPO and new customer bookings, as we typically sell a higher percentage of subscriptions to new customers and renewal subscriptions with existing customers in the fourth quarter of the year. We believe that this results from the procurement, budgeting and deployment cycles of many of our customers, particularly our enterprise customers.
Historically, we have experienced seasonality in new customer bookings, as we typically sell a higher percentage of subscriptions to new customers and renewal subscriptions with existing customers in the fourth quarter of the year. We believe that this results from the procurement, budgeting and deployment cycles of many of our customers, particularly our enterprise customers.
Our current and future international business and operations involve a variety of risks, including: • slower than anticipated availability and adoption of cloud infrastructure or cloud-native products by international businesses; • changes in a specific country’s or region’s political or economic conditions, including in the UK as a result of Brexit; • the need to adapt and localize our offering for specific countries; • greater difficulty collecting accounts receivable and longer payment cycles; • potential changes in trade relations, regulations, or laws; • unexpected changes in laws, regulatory requirements, or tax laws; • interest rates, as well as changes in existing and expected interest rates, which may vary across the jurisdictions in which we do business; • more stringent regulations relating to data privacy, security, and data localization requirements and the unauthorized use of, or access to, commercial and personal information; • differing and potentially more onerous labor regulations, especially in Europe, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction; • potential changes in laws, regulations, and costs affecting our UK operations and local employees due to Brexit; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems; 55 Table of Contents • increased travel, real estate, infrastructure, and legal compliance costs associated with international operations; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and challenges to international customers due to a rise in the value of the U.S. dollar; • the cost and risk of entering into hedging transactions; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • laws and business practices favoring local competitors or general market preferences for local vendors; • limited or insufficient intellectual property protection or difficulties obtaining, maintaining, protecting, or enforcing our intellectual property rights, including our trademarks and patents; • political instability, economic sanctions, terrorist activities, or international conflicts, including the ongoing conflicts between Russia and Ukraine and in the Middle East, which have impacted and may continue to impact the operations of our business or the businesses of our customers; • inflationary pressures, such as those the global market is currently experiencing, which have increased and may continue to increase costs for certain services; • health epidemics or pandemics, such as the COVID-19 pandemic; • actual or perceived risk of economic recession; • exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S.
Our current and future international business and operations involve a variety of risks, including: • slower than anticipated availability and adoption of cloud infrastructure or cloud-native products by international businesses; • changes in a specific country’s or region’s political or economic conditions, including in the UK as a result of Brexit; • the need to adapt and localize our offerings for specific countries; • greater difficulty collecting accounts receivable and longer payment cycles; • potential changes in trade relations, regulations, or laws; • unexpected changes in laws, regulatory requirements, or tax laws; • interest rates, as well as changes in existing and expected interest rates, which may vary across the jurisdictions in which we do business; • more stringent regulations relating to data privacy, security, and data localization requirements and the unauthorized use of, or access to, commercial and personal information; • differing and potentially more onerous labor regulations, especially in Europe, where labor laws are generally more advantageous to employees as compared to the United States, including hourly wage and overtime regulations in these locations; • challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction; • potential changes in laws, regulations, and costs affecting our UK operations and local employees due to Brexit; • difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems; • increased travel, real estate, infrastructure, and legal compliance costs associated with international operations; • currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and challenges to international customers in the event of a rise in the value of the U.S. dollar; • the cost and risk of entering into hedging transactions; • limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; • laws and business practices favoring local competitors or general market preferences for local vendors; • limited or insufficient intellectual property protection or difficulties obtaining, maintaining, protecting, or enforcing our intellectual property rights, including our trademarks and patents; • political instability, economic sanctions, terrorist activities, or international conflicts, including the ongoing conflicts between Russia and Ukraine and in the Middle East, which have impacted and may continue to impact the operations of our business or the businesses of our customers; • inflationary pressures, such as those the global market is currently experiencing, which have increased and may continue to increase costs for certain services; • health epidemics or pandemics, such as the COVID-19 pandemic; • actual or perceived risk of economic recession; 56 Table of Contents • exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S.
In addition, to the extent that a third party were to develop software or services that compete with ours, that provider may choose not to support our offering. We intend to facilitate the compatibility of our offering with various third-party software, software services, and infrastructure offerings by maintaining and expanding our business and technical relationships.
In addition, to the extent that a third party were to develop software or services that compete with ours, that provider may choose not to support our offerings. We intend to facilitate the compatibility of our offerings with various third-party software, software services, and infrastructure offerings by maintaining and expanding our business and technical relationships.
Kreps (or family trusts to which he were to transfer shares of Class B common stock) retain a significant portion of his holdings of Class B common stock for an extended period of time, he (or such trusts) could, in the future, control a majority of the combined voting power of our Class A common stock and Class B common stock.
Kreps (or family trusts to which he has or were to transfer shares of Class B common stock) retain a significant portion of his holdings of Class B common stock for an extended period of time, he (or such trusts) could, in the future, control a majority of the combined voting power of our Class A common stock and Class B common stock.
As a result, there may be fluctuations in revenue period over period as revenue is dependent on varying patterns of customer consumption and timing of sales of Confluent Platform, which can result in larger upfront revenue recognition upon delivery of the term-based licenses, as well as revenue mix.
As a result, there may be fluctuations in revenue period over period as revenue is dependent on varying patterns of customer consumption and timing of sales and renewals of Confluent Platform, which can result in larger upfront revenue recognition upon delivery of the term-based licenses, as well as revenue mix.
Any failure to adapt our offering to evolving network architecture technology, disruption in the operations of these third-party providers, limitations on capacity or use of features, or interference with our use could adversely affect our business, financial condition, and results of operations. • The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to the IPO, including our executive officers, employees, and directors and their affiliates, and limiting your ability to influence corporate matters, which could adversely affect the trading price of our Class A common stock.
Any failure to adapt our offerings to evolving network architecture technology, disruption in the operations of these third-party providers, limitations on capacity or use of features, or interference with our use could adversely affect our business, financial condition, and results of operations. • The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to the IPO, including our executive officers, employees, and directors and their affiliates, and limiting your ability to influence corporate matters, which could adversely affect the trading price of our Class A common stock.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, inflation and efforts to control further inflation, including rising interest rates, bank failures, international trade relations, political turmoil, potential U.S. federal government shutdowns, natural catastrophes, warfare, and terrorist attacks on the United States, Europe, the Asia Pacific region, including Japan, or elsewhere, could cause a decrease in business investments by existing or potential customers, including spending on information technology, and negatively affect the growth of our business.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, inflation and efforts to control further inflation, including high interest rates, bank failures, international trade relations, political turmoil, potential U.S. federal government shutdowns, natural catastrophes, warfare, and terrorist attacks on the United States, Europe, the Asia Pacific region, including Japan, or elsewhere, could cause a decrease in business investments by existing or potential customers, including spending on information technology, and negatively affect the growth of our business.
If we are unable to use GenAI, it could make our business less efficient and result in competitive disadvantages. Finally, we may publish privacy policies, marketing material, and other documentation or statements regarding our collection, use, disclosure, and other processing of personal information.
If we are unable to use GenAI, it could make our business less efficient and result in competitive disadvantages. Finally, we publish privacy policies, marketing material, and other documentation or statements regarding our collection, use, disclosure, and other processing of personal information.
In certain cases when we provide our offering for sale by channel partners as part of their value-added offerings, our partners may be responsible for providing support and support personnel for our customers. We often have limited to no control or visibility in such cases.
In certain cases when we provide our offerings for sale by channel partners as part of their value-added offerings, our partners may be responsible for providing support and support personnel for our customers. We often have limited to no control or visibility in such cases.
We have also historically targeted larger enterprise customers as part of our overall sales and marketing strategy, but expect to refine that strategy from time to time, including in connection with our planned shift to a consumption-oriented model for our sales motion.
We have also historically targeted larger enterprise customers as part of our overall sales and marketing strategy, but expect to refine that strategy from time to time, including in connection with our shift to a consumption-oriented model for our sales motion.
If we are unable to sufficiently differentiate our offering from Apache Kafka, other offerings based on or derived from Apache Kafka, or other data-in-motion offerings, we may not be successful in achieving market acceptance of our offering, which would limit our growth and future revenue.
If we are unable to sufficiently differentiate our offerings from Apache Kafka, other offerings based on or derived from Apache Kafka, or other data-in-motion offerings, we may not be successful in achieving market acceptance of our offerings, which would limit our growth and future revenue.
If the actual or perceived value of our equity awards declines, experiences significant volatility, or increases such that prospective employees believe there is limited upside to the value of our equity awards, it may adversely affect our ability to recruit and retain key employees.
If the actual or perceived value of our equity awards declines, experiences significant volatility, or increases such that current and prospective employees believe there is limited upside to the value of our equity awards, it may adversely affect our ability to recruit and retain key employees.
If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our business could suffer. 21 Table of Contents Macroeconomic uncertainty, unfavorable conditions in our industry or the global economy, including those caused by the ongoing conflicts around the world, reductions in information technology spending, or inflation, have impacted and may continue to impact our ability to grow our business and negatively affect our results of operations.
If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our business could suffer. 24 Table of Contents Macroeconomic uncertainty, unfavorable conditions in our industry or the global economy, including those caused by the ongoing conflicts around the world, reductions in information technology spending, or inflation, have impacted and may continue to impact our ability to grow our business and negatively affect our results of operations.
In the event that our service agreements with our third-party cloud service providers are terminated or amended, or there is a lapse of service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, access to Confluent Cloud could be interrupted and result in significant delays and additional expense as we arrange or create new facilities and services or re-architect our Confluent Cloud service for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition, and results of operations.
In the event that our service agreements with our third-party cloud service providers are terminated or amended, or there is a lapse o f service, elimination of services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, access to Confluent Cloud could be interrupted and result in significant delays and additional expense as we arrange or create new facilities and services or re-architect our Confluent Cloud service for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition, and results of operations.
In addition, the data infrastructure market is large and continues to grow rapidly, and our future success will depend in part on differentiating our offering from open source alternatives, including Apache Kafka, and other data-in-motion offerings.
In addition, the data infrastructure market is large and continues to grow rapidly, and our future success will depend in part on differentiating our offerings from open source alternatives, including Apache Kafka, and other data-in-motion offerings.
Because the market for our offerings is relatively new, it is difficult to predict customer adoption, increased customer usage and demand for our offering, the size and growth rate of this market, the entry of competitive products, or the success of existing competitive products.
Because the market for our offerings is relatively new, it is difficult to predict customer adoption, increased customer usage and demand for our offerings, the size and growth rate of this market, the entry of competitive products, or the success of existing competitive products.
To the extent that we do not effectively anticipate capacity demands, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and results of operations may be adversely affected. 52 Table of Contents If we are unable to develop and maintain successful relationships with partners to distribute our products and generate sales opportunities, our business, results of operations, and financial condition could be harmed.
To the extent that we do not effectively anticipate capacity demands, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and results of operations may be adversely affected. 53 Table of Contents If we are unable to develop and maintain successful relationships with partners to distribute our products and generate sales opportunities, our business, results of operations, and financial condition could be harmed.
Our ability to attract new users and customers and increase revenue from existing customers depends in large part on our ability to enhance, improve, and differentiate our existing offering, increase adoption and usage of our offering, and introduce new offerings and capabilities.
Our ability to attract new users and customers and increase revenue from existing customers depends in large part on our ability to enhance, improve, and differentiate our existing offerings, increase adoption and usage of our offerings, and introduce new offerings and capabilities.
Further, inflationary pressures, or stress over economic, geopolitical, or pandemic-related events such as those the global market is currently experiencing, may result in employee attrition. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached certain legal obligations, resulting in a diversion of our time and resources.
Further, inflationary pressures, or stress over economic or geopolitical events such as those the global market is currently experiencing, may result in employee attrition. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached certain legal obligations, resulting in a diversion of our time and resources.
If these services become unavailable due to extended outages, interruptions or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted and our processes for managing sales of our offering and supporting our customers could be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which could adversely affect our business and results of operations.
If these services become unavailable due to extended outages, interruptions or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted and our processes for managing sales of our offerings and supporting our customers could be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which could adversely affect our business and results of operations.
Reduced consumption by, or the loss or expected loss of, customers has historically negatively impacted and may continue to negatively impact our growth, business, results of operations, and financial condition.
Reduced consumption by, or the loss or expected loss of, certain customers has historically negatively impacted and may continue to negatively impact our growth, business, results of operations, and financial condition.
We have established an internal audit group, and as we continue to grow, we may hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
We have established an internal audit group, and as we continue to grow, we have hired, and may continue to hire, additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
All of the foregoing could make it difficult or impossible for us to provide subscriptions and services that compete favorably with those of the public cloud providers. 25 Table of Contents With the introduction of new technologies, market entrants, and open source alternatives, including those based on Apache Kafka, we expect that the competitive environment will remain intense going forward.
All of the foregoing could make it difficult or impossible for us to provide subscriptions and services that compete favorably with those of the public cloud providers. 28 Table of Contents With the introduction of new technologies, market entrants, and open source alternatives, including those based on Apache Kafka, we expect that the competitive environment will remain intense going forward.
Similarly, our sales efforts could be adversely impacted if customers or users within these organizations perceive that features incorporated into competitive products reduce the need for our offering or if they prefer to purchase competing products that are bundled together with other types of products, such as data infrastructure platforms offered by public cloud providers.
Similarly, our sales efforts could be adversely impacted if customers or users within these organizations perceive that features incorporated into competitive products reduce the need for our offerings or if they prefer to purchase competing products that are bundled together with other types of products, such as data infrastructure platforms offered by public cloud providers.
If our activities were determined to be out of compliance with the terms of any applicable “copyleft” open source licenses, we may be required to publicly release certain portions of our proprietary source code for no cost, we could face an injunction for our offering, and we could also be required to expend substantial time and resources to re-engineer some or all of our software.
If our activities were determined to be out of compliance with the terms of any applicable “copyleft” open source licenses, we may be required to publicly release certain portions of our proprietary source code for no cost, we could face an injunction for our offerings, and we could also be required to expend substantial time and resources to re-engineer some or all of our software.
Moreover, no assurance can be given that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, reverse engineering, or disclosure of our proprietary information, know-how, and trade secrets. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our offering and platform capabilities.
Moreover, no assurance can be given that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, reverse engineering, or disclosure of our proprietary information, know-how, and trade secrets. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our offerings and platform capabilities.
If we have a security incident or third-party cloud service providers experience security incidents, loss of customer data, disruptions in delivery or other similar problems, which is an increasing focus of the public and investors in recent years, the market for products as a whole, including our offering, may be negatively affected.
If we have a security incident or third-party cloud service providers experience security incidents, loss of customer data, disruptions in delivery or other similar problems, which is an increasing focus of the public and investors in recent years, the market for products as a whole, including our offerings, may be negatively affected.
If data-in-motion technology does not achieve market acceptance, including from rapidly evolving markets or industries, such as GenAI, or there is a reduction in consumption or demand caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data privacy and security concerns, governmental regulation, competing technologies and products, decreases in information technology spending or otherwise, the market for our offering might not continue to develop or might develop more slowly than we expect, which would adversely affect our business, financial condition, and results of operations.
If data-in-motion technology does not achieve market acceptance, including from rapidly evolving markets or industries, such as GenAI, or there is a reduction in consumption or demand caused by a lack of customer acceptance, technological challenges, economic conditions, data privacy and security concerns, governmental regulation, competing technologies and products, decreases in information technology spending or otherwise, the market for our offerings might not continue to develop or might develop more slowly than we expect, which would adversely affect our business, financial condition, and results of operations.
Our revenue growth rate, business, and results of operations have from time to time been harmed and may in the future be harmed if our sales and marketing efforts fail to successfully expand our potential customer and sales pipeline and existing customer engagement with our offering, including through increasing brand awareness, new customer acquisition, and market adoption of our offering, particularly for Confluent Cloud.
Our revenue growth rate, business, and results of operations have from time to time been harmed and may in the future be harmed if our sales and marketing efforts fail to successfully expand our potential customer and sales pipeline and existing customer engagement with our offerings, including through increasing brand awareness, new customer acquisition, and market adoption of our offerings, particularly for Confluent Cloud.
Additionally, our success depends in part on the adoption and expanded use of our offering by customers who are subject to rapidly evolving rules, regulations, and industry standards or are in new or emerging markets, such as GenAI, which may impact our ability to generate market acceptance of our offering or cause market acceptance of our offering to develop more slowly than we expect.
Additionally, our success depends in part on the adoption and expanded use of our offerings by customers who are subject to rapidly evolving rules, regulations, and industry standards or are in new or emerging markets, such as GenAI, which may impact our ability to generate market acceptance of our offerings or cause market acceptance of our offerings to develop more slowly than we expect.
Our revenue growth rate has declined from time to time, and may decline in the future, as a result of a variety of factors, including our focus on operating efficiency and margin improvement, the effectiveness of our sales and marketing strategies and function, our ability to continue gaining market acceptance of our offering, macroeconomic challenges and uncertainty, increased competition, and changes to technology.
Our revenue growth rate has declined from time to time, and may decline in the future, as a result of a variety of factors, including our focus on operating efficiency and margin improvement, the effectiveness of our sales and marketing strategies and function, our ability to continue gaining market acceptance of our offerings, macroeconomic challenges and uncertainty, increased competition, and changes to technology.
We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our offering and adversely affect our results of operations. An increasing number of states have considered or adopted laws that impose tax collection obligations on out-of-state companies.
We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our offerings and adversely affect our results of operations. An increasing number of states have considered or adopted laws that impose tax collection obligations on out-of-state companies.
As a result, our shifts in sales strategy focused on customer acquisition for Confluent Cloud and a consumption-oriented sales model could result in near term fluctuations in our financial results as compared to prior periods, particularly if previous Confluent Platform customers shift to Confluent Cloud, given that subscriptions to Confluent Cloud have historically had a lower average price compared to subscriptions to Confluent Platform.
As a result, our shifts in sales strategy focused on customer acquisition for Confluent Cloud and a consumption-oriented sales model have resulted and could continue to result in near term fluctuations in our financial results as compared to prior periods, particularly if previous Confluent Platform customers shift to Confluent Cloud, given that subscriptions to Confluent Cloud have historically had a lower average price compared to subscriptions to Confluent Platform.
Our business and growth will also be negatively impacted if we do not experience the expected benefits from the shift toward a consumption-oriented sales model during or following its implementation, including if we continue experiencing headwinds on consumption, use case expansion or adoption of Confluent Cloud due to other factors.
Our business and growth will also be negatively impacted if we do not experience the expected benefits from our shift to a consumption-oriented sales model following its implementation, including if we continue experiencing headwinds on consumption, use case expansion or adoption of Confluent Cloud due to other factors.
Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our offering and platform capabilities, impair the functionality of our offering and platform capabilities, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our offering, or injure our reputation.
Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our offerings and platform capabilities, impair the functionality of our offerings and platform capabilities, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our offerings, or injure our reputation.
A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our offering, the discretionary nature of purchasing and budget cycles, macroeconomic uncertainty and challenges and resulting increased IT spending scrutiny, heightened security and data privacy requirements, and the competitive nature of evaluation and purchasing approval processes.
A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our offerings, the discretionary nature of purchasing and budget cycles, macroeconomic uncertainty and challenges and resulting increased IT spending scrutiny, heightened security and data privacy requirements, and the competitive nature of the evaluation and purchasing approval processes.
Moreover, large enterprise customers often begin to deploy our offering on a limited basis but nevertheless demand configuration, integration services, and pricing negotiations, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our offering widely enough across their organization to justify our substantial upfront investment.
Moreover, large enterprise customers often begin to deploy our offerings on a limited basis but nevertheless demand configuration, integration services, and pricing negotiations, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our offerings widely enough across their organization to justify our substantial upfront investment.
If our customers do not renew their subscriptions and/or usage-based commitments, expand their use of our offering, and purchase additional products from us, our revenue may decline and our business, financial condition, and results of operations may be harmed. If we or any of our partners fail to offer high-quality support, our reputation could suffer.
If our customers do not renew their subscriptions and/or usage-based commitments, expand their use of our offerings, and purchase additional products from us, our revenue may decline and our business, financial condition, and results of operations may be harmed. If we or any of our partners fail to offer high-quality support, our reputation could suffer.
However, larger Confluent Cloud sales, including those with terms over one year, may also result in greater variations in usage levels due to the timing and size of those commitments. In addition, we have experienced and expect to continue experiencing an increased contribution from Confluent Cloud to our revenue mix.
However, larger Confluent Cloud sales, including those with terms over one year, may also result in greater variations in usage levels due to the timing and size of those commitments. In addition, we have experienced and expect to continue to experience an increased contribution from Confluent Cloud to our revenue mix.
This development effort may require significant investment in engineering, support, marketing, and sales resources, all of which would affect our business and results of operations. Any failure of our offering to operate effectively with widely adopted, future data infrastructure platforms, applications, and technologies would reduce the demand for our offering.
This development effort may require significant investment in engineering, support, marketing, and sales resources, all of which would affect our business and results of operations. Any failure of our offerings to operate effectively with widely adopted, future data infrastructure platforms, applications, and technologies would reduce the demand for our offerings.
The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable users or companies covered by our market opportunity estimates will purchase our offering at all or generate any particular level of revenue for us.
The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable users or companies covered by our market opportunity estimates will purchase our offerings at all or generate any particular level of revenue for us.
We typically provide service-level commitments under our customer agreements. If we fail to meet these commitments, we could face customer terminations, a reduction in renewals, and damage to our reputation, which would lower our revenue and harm our business, financial condition, and results of operations. Our agreements with our customers contain uptime and response service-level commitments.
We typically provide service-level commitments under our customer agreements. If we fail to meet these commitments, we could face customer terminations, a reduction in renewals, and damage to our reputation, which would lower our revenue and harm our business, financial condition, and results of operations. Our agr eements with our customers contain uptime and response service-level commitments.
As a result, the future of Apache Kafka, Apache Flink and other open source software could change dramatically and such change in trajectory, use and acceptance in the marketplace and resulting competitive pressure could result in reductions in the prices we charge for our offering, loss of market share, and adversely affect our business operations and financial outlook.
As a result, the future of Apache Kafka, Apache Flink and other open source software could change dramatically and such change in trajectory, use and acceptance in the marketplace and resulting competitive pressure could result in reductions in the prices we charge for our offerings, loss of market share, and adversely affect our business operations and financial outlook.
If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our offering or cease business activities related to such intellectual property.
If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our offerings or cease business activities related to such intellectual property.
Use of open source software may also present additional security risks because the public availability of such software may publicize vulnerabilities or otherwise make it easier for hackers and other third parties to determine how to compromise our platform or the systems of our customers who are running our offering.
Use of open source software may also present additional security risks because the public availability of such software may publicize vulnerabilities or otherwise make it easier for hackers and other third parties to determine how to compromise our platform or the systems of our customers who are running our offerings.
In addition, the success of our business is substantially dependent on the actual and perceived viability, benefits, and advantages of our offering as a preferred data streaming platform, particularly when compared to open source alternatives developed internally by customers. As such, market adoption of our offering is critical to our continued success.
In addition, the success of our business is substantially dependent on the actual and perceived viability, benefits, and advantages of our offerings as a preferred data streaming platform, particularly when compared to open source alternatives developed internally by customers. As such, market adoption of our offerings is critical to our continued success.
Such existing or prospective customers may also have reservations about utilizing proprietary software like our offering and may instead opt to use solely open source software based on the perception that this will lower long-term costs and reduce dependence on third-party vendors.
Such existing or prospective customers may also have reservations about utilizing proprietary software like our offerings and may instead opt to use solely open source software based on the perception that this will lower long-term costs and reduce dependence on third-party vendors.
Although our agreements with our customers typically contain provisions that seek to limit our exposure to such claims, it is possible that these provisions may not be effective or enforceable under the laws of some jurisdictions. While we seek to insure against these types of claims, our insurance policies may not adequately limit our exposure to such claims.
Although our agreements with our customers typically contain provisions that seek to limit our exposure to such claims, it is possible t hat these provisions may not be effective or enforceable under the laws of some jurisdictions. While we seek to insure against these types of claims, our insurance policies may not adequately limit our exposure to such claims.
Customers may engage in extensive evaluation, testing, and quality assurance work before making a purchase commitment, which increases our upfront investment in sales, marketing, and deployment efforts, with no guarantee that these customers will make a purchase or increase the scope of their subscriptions.
Customers may engage in extensive evaluation, testing, and quality assurance work before making a purchase commitment, which increases our upfront investment in sales, marketing, and deployment efforts, with no guarantee that these customers will make a purchase or increase the scope of their subscriptions or usage commitments.
Because our customers rely on our offering to manage a wide range of operations, the incorrect implementation or use of our offering, or our self-managed customers’ failure to update Confluent Platform, or our failure to train customers on how to use our offering productively may result in customer dissatisfaction, and negative publicity, and may adversely affect our reputation and brand.
Because our customers rely on our offerings to manage a wide range of operations, the incorrect implementation or use of our offerings, or our self-managed customers’ failure to update Confluent Platform, or our failure to train customers on how to use our offerings productively may result in customer dissatisfaction and negative publicity, and may adversely affect our reputation and brand.
In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our offering and proprietary information will likely increase.
In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our offerings and proprietary information will likely increase.
In addition, the European Union and other countries (including those in which we operate) have enacted or have committed to enacting the Organisation for Economic Co-operation and Development/G20 Framework’s Pillar Two 15% global minimum tax, which may increase our tax expense in future years.
In addition, the European Union an d other countries (including those in which we operate) have enacted or have committed to enacting the Organisation for Economic Co-operation and Development/G20 Framework’s Pillar Two 15% global minimum tax, which may increase our tax expense in future years.
Certain of our agreements with our customers and other third parties include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of infringement, misappropriation or other violation of intellectual property rights, data protection, compliance with laws, damages caused by us to property or persons, or other liabilities relating to or arising from our software, services, platform, our acts or omissions under such agreements, or other contractual obligations.
Certain of our agreements with our customers and other third parties include indemnification provisions under which we ag ree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of infringement, misappropriation or other violation of intellectual property rights, data protection, compliance with laws, damages caused by us to property or persons, or other liabilities relating to or arising from our software, services, platform, our acts or omissions under such agreements, or other contractual obligations.
Although we attempt to contractually limit our liability with respect to such indemnity obligations, we are not always successful and may still incur substantial liability related to them, and we may be required to cease use of or modify certain functions of our offering as a result of any such claims.
Although we attempt to contractually limit our liability with respect to such indemnity obligations, we are not always successful and may still incur substantial liability related to them, and we may be required to cease use of or modify certain functions of our offerings as a result of any such claims.
Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our offering by, or in our decreased ability to export or sell our offering to, existing or potential end-customers with international operations.
Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our offerings by, or in our decreased ability to export or sell our offerings to, existing or potential end-customers with international operations.
Further, we have experienced, and in future periods, may continue to experience, slower revenue growth, and our revenue could decline for a number of reasons, including shifts in our offering and revenue mix, slowing demand for our offering, increasing competition, decreased productivity of our sales and marketing organization and effectiveness of our sales and marketing efforts to acquire new customers, retain existing customers or expand existing subscriptions and usage-based commitments, strategic focus on operating efficiencies and margin improvements, changing technology, a decrease in the growth of our overall market, our failure, for any reason, to continue to take advantage of growth opportunities, or our failure to adapt and respond to inflationary factors affecting our business or future economic recessions.
Further, we have experienced, and in future periods may continue to experience, slower revenue growth, and our revenue could decline for a number of reasons, including shifts in our offerings and revenue mix, slowing demand for our offerings, increasing competition, decreased productivity of our sales and marketing organization and effectiveness of our sales and marketing efforts to acquire new customers, retain existing customers or expand existing subscriptions and consumption of our usage-based offerings, strategic focus on operating efficiencies and margin improvements, changing technology, a decrease in the growth of our overall market, our failure, for any reason, to continue to take advantage of growth opportunities, or our failure to adapt and respond to inflationary factors affecting our business or future economic recessions.
As a result, any decreases in new subscriptions or renewals in any one period may not immediately be fully reflected as a decrease in revenue for that period but would negatively affect our revenue in future quarters, even though such a decrease would be reflected in certain of our metrics as of the end of such period, including RPO.
As a result, any decreases in new subscriptions or renewals in any one period may not immediately be fully reflected as a decrease in revenue for that period but would negatively affect our revenue in future quarters, even though such a decrease would be reflected in certain of our metrics as of the end of such period.
We have limited experience with respect to determining the optimal prices for our offering, and, in particular, we have limited experience pricing our offering under economic conditions characterized by high inflation or in recessionary or uncertain economic environments. We have changed our pricing model from time to time and expect to continue to do so in the future.
We have limited experience with respect to determining the optimal prices for our offerings, and, in particular, we have limited experience pricing our offerings under economic conditions characterized by high inflation or in recessionary or uncertain economic environments. We have changed our pricing model from time to time and expect to continue to do so in the future.
In order for us to maintain or improve our results of operations, it is important that our customers enter into relationships with us that increase in value over time, and renew and expand their subscriptions with us, including through the use of our offering for additional use cases and applications.
In order for us to maintain or improve our results of operations, it is important that our customers enter into relationships with us that increase in value over time, and renew and expand their subscriptions with us, including through the use of our offerings for additional use cases and applications.
Additionally, the development and growth of our proprietary offering may result in the perception within the open source community of a diminution of our commitment to Apache Kafka, Apache Flink and other open source platforms. Such perceptions may negatively affect our reputation within the developer community, which may adversely affect market acceptance and future sales of our offering.
Additionally, the development and growth of our proprietary offerings may result in the perception within the open source community of a diminution of our commitment to Apache Kafka, Apache Flink and other open source platforms. Such perceptions may negatively affect our reputation within the developer community, which may adversely affect market acceptance and future sales of our offerings.
While we have taken certain precautions to prevent our offering from being provided in violation of export control and sanctions laws, and are in the process of enhancing our policies and procedures relating to export control and sanctions compliance, our products may have been in the past, and could in the future be, provided inadvertently in violation of such laws.
While we have taken certain precautions to prevent our offerings from being provided in violation of export control and sanctions laws, and are in the process of enhancing our policies and procedures relating to export control and sanctions compliance, our products may have been in the past, and could in the future be, provided inadvertently in violation of such laws.
We cannot assure you that there will not be material weaknesses in our internal control over financial reporting in the future. Failure to maintain internal control over financial reporting, including historical or future control deficiencies, could severely inhibit our ability to accurately report our financial condition or results of operations.
We cannot assure you that there will not be material weaknesses in our internal control ov er financial reporting in the future. Failure to maintain internal control over financial reporting, including historical or future control deficiencies, could severely inhibit our ability to accurately report our financial condition or results of operations.
We believe that maintaining and enhancing the Confluent brand, including among developers, is important to support the marketing and sale of our existing and future offerings to new customers and expansion of sales to existing customers. We believe that the importance of brand recognition will increase as competition in our market increases.
We believe that maintaining and enhancing the Confluent brand, including among developers, is important to support the marketing and sale of our existing and future offerings to new customers and expansion of sales to existing cust omers. We believe that the importance of brand recognition will increase as competition in our market increases.
Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights. We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other third parties, including suppliers and other partners.
Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights. We enter into confidentiality and invention assignment agreements with our employees and consultants and ente r into confidentiality agreements with other third parties, including suppliers and other partners.
Accordingly, our exposure to damages resulting from infringement claims could increase, and this could further exhaust our financial and management resources. 51 Table of Contents Risks Related to Our Dependence on Third Parties We rely on third-party providers of cloud-based infrastructure to host Confluent Cloud.
Accordingly, our exposure to damages resulting from infringement claims could increase, and this could further exhaust our financial and management resources. 52 Table of Contents Risks Related to Our Dependence on Third Parties We rely on third-party providers of cloud-based infrastructure to host Confluent Cloud.
There can be no assurance that such customers will enter into commitments with us, expand their existing commitments, or ramp their usage of Confluent Cloud, even following our shift in our sales strategy to a consumption-oriented model.
There can be no assurance that such free users will enter into commitments with us, or that customers will expand their existing commitments or ramp their usage of Confluent Cloud, even following our shift in our sales strategy to a consumption-oriented model.
Software developers, including those within our customers’ IT departments, are often familiar with our underlying technology and value proposition. We rely on their continued adoption of our offering to evangelize on our behalf within their organizations and increase reach and mindshare within the developer community.
Software developers, including those within our customers’ IT departments, are often familiar with our underlying technology and value proposition. We rely on their continued adoption of our offerings to evangelize on our behalf within their organizations and increase reach and mindshare within the developer community.
If we, or the third parties we rely on to operate our business and deliver our services, fail to comply, or are perceived as failing to comply, with our legal or contractual obligations relating to data privacy and security, or our policies and documentation relating to personal information, we could face governmental enforcement action; litigation with our customers, individuals or others; fines and civil or criminal penalties for us or company officials; obligations to cease offering our services or to substantially modify them in ways that make them less effective in certain jurisdictions; negative publicity and harm to our brand and reputation; and reduced overall demand for our services.
If we, or the third parties with whom we work to operate our business and deliver our services, fail to comply, or are perceived as failing to comply, with our legal or contractual obligations relating to data privacy and security, or our policies and documentation relating to personal information, we could face governmental enforcement action; litigation with our customers, individuals or others; fines and civil or criminal penalties for us or company officials; obligations to cease offering our services or to substantially modify them in ways that make them less effective in certain jurisdictions; negative publicity and harm to our brand and reputation; and reduced overall demand for our services.
For example, proposed or adopted climate and other ESG reporting regulations from the SEC, California, and other jurisdictions may increase our compliance costs. We may also face greater costs to comply with new ESG standards or initiatives in the European Union.
For example, proposed or adopted climate and other ESG reporting regulations from the SEC, California, the European Union, the United Kingdom and other jurisdictions may increase our compliance costs. We may also face greater costs to comply with new ESG standards or initiatives in the European Union.
Additionally, we cannot be certain that our insurance coverage will be adequate or otherwise protect us with respect to claims, expenses, fines, penalties, business loss, data loss, litigation, regulatory actions, or other impacts arising out of security incidents, particularly if we experience an event that impacts multiple customers, that such coverage will continue to be available on acceptable terms or at all, or that such coverage will pay future claims.
Additio nally, we cannot be certain that our insurance coverage will be adequate or otherwise protect us with respect to claims, expenses, fines, penalties, business loss, data loss, litigation, regulatory actions, or other impacts arising out of security incidents, particularly if we experience an event that impacts multiple customers, that such coverage will continue to be available on acceptable terms or at all, or that such coverage will pay future claims.
To date, we have not completed an end-to-end test of all recovery scenarios for the Confluent Cloud offering and, as such, our recovery plans may not resolve disruptions, outages or other performance problems as quickly or as fully as we intend.
To date, we have not completed an end-to-end test of all recovery scenarios for the Confluent Cloud offering and, as such, our recovery plans may not resolve disruptions, outages o r other performance problems as quickly or as fully as we intend.
Our future success depends in part on our ability to expand our customers’ use of our offering into additional use cases, our customers renewing their subscriptions and usage-based commitments, and our ability to develop our offering for additional use cases and applications. The terms of our subscriptions and usage-based commitments are primarily one year in duration.
Our future success depends in part on our ability to expand our customers’ use of our offerings into additional use cases, our customers renewing their subscriptions and usage-based commitments, and our ability to develop our offerings for additional use cases and applications. The terms of our subscriptions and usage-based commitments are primarily one year in duration.
Any failure to adapt our offering to evolving network architecture technology, disruption in the operations of these third-party providers, limitations on capacity or use of features, or interference with our use could adversely affect our business, financial condition, and results of operations.
Any failure to adapt our offerings to evolving network architecture technology, disruption in the operations of these third-party providers, limitations on capacity or use of features, or interference with our use could adversely affect our business, financial condition, and results of operations.
Failure to successfully address these factors, satisfy customer demands, achieve continued market acceptance over competitors, including open source alternatives, and achieve growth in sales of our offering would harm our business, results of operations, financial condition, and growth prospects.
Failure to successfully address these factors, satisfy customer demands, achieve continued market acceptance over competitors, including open source alternatives, and achieve growth in sales of our offerings would harm our business, results of operations, financial condition, and growth prospects.
Actions that we have taken in the past or may take in the future with respect to Apache Kafka or our community license, including the development and growth of our proprietary offering, may be perceived negatively by the developer community and harm our reputation.
Actions that we have taken in the past or may take in the future with respect to Apache Kafka or our community license, including the development and growth of our proprietary offerings, may be perceived negatively by the developer community and harm our reputation.
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Item 1C. Cybersecurity
Cybersecurity — threats and controls disclosure
94 edited+18 added−19 removed71 unchanged
Item 1C. Cybersecurity
Cybersecurity — threats and controls disclosure
94 edited+18 added−19 removed71 unchanged
2023 filing
2024 filing
Biggest changeSee Note 13 to our consolidated financial statements for further information. 80 Table of Contents Results of Operations The following table sets forth our consolidated statements of operations data for the periods presented: Year Ended December 31, 2023 2022 2021 (in thousands) Revenue: Subscription $ 729,112 $ 535,009 $ 347,099 Services 47,840 50,935 40,765 Total revenue 776,952 585,944 387,864 Cost of revenue: Subscription (1)(2) 176,004 146,324 94,860 Services (1)(2) 53,666 56,091 42,432 Total cost of revenue 229,670 202,415 137,292 Gross profit 547,282 383,529 250,572 Operating expenses: Research and development (1)(2) 348,752 264,041 161,925 Sales and marketing (1)(2) 504,929 456,452 319,331 General and administrative (1)(2) 137,520 125,710 108,936 Restructuring and other related charges 34,854 - - Total operating expenses 1,026,055 846,203 590,192 Operating loss (478,773 ) (462,674 ) (339,620 ) Other income (expense), net 72,099 16,416 (7 ) Loss before income taxes (406,674 ) (446,258 ) (339,627 ) Provision for income taxes 36,072 6,293 3,174 Net loss $ (442,746 ) $ (452,551 ) $ (342,801 ) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2023 2022 2021 (in thousands) Cost of revenue - subscription $ 25,620 $ 23,136 $ 12,571 Cost of revenue - services 11,096 9,253 5,418 Research and development 139,809 101,499 49,051 Sales and marketing 124,568 99,366 55,506 General and administrative 48,740 44,402 33,078 Total stock-based compensation expense $ 349,833 $ 277,656 $ 155,624 (2) Includes employer taxes on employee stock transactions as follows: Year Ended December 31, 2023 2022 2021 (in thousands) Cost of revenue - subscription $ 867 $ 569 $ 636 Cost of revenue - services 392 604 377 Research and development 4,037 2,632 2,278 Sales and marketing 3,880 2,485 4,266 General and administrative 1,855 720 2,532 Total employer taxes on employee stock transactions $ 11,031 $ 7,010 $ 10,089 81 Table of Contents The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated: Year Ended December 31, 2023 2022 2021 Revenue: Subscription 94 % 91 % 89 % Services 6 9 11 Total revenue 100 100 100 Cost of revenue: Subscription 23 25 24 Services 7 10 11 Total cost of revenue 30 35 35 Gross profit 70 65 65 Operating expenses: Research and development 45 45 42 Sales and marketing 65 78 82 General and administrative 18 21 28 Restructuring and other related charges 4 0 0 Total operating expenses 132 144 152 Operating loss (62 ) (79 ) (87 ) Other income (expense), net 9 3 0 Loss before income taxes (52 ) (76 ) (87 ) Provision for income taxes 5 1 1 Net loss (57 )% (77 )% (88 )% __________________________________________________ Note: Certain figures may not sum due to rounding.
Biggest changeWe maintain a full valuation allowance against our U.S. and U.K. deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized. 80 Table of Contents Results of Operations The following table sets forth our consolidated statements of operations data for the periods presented: Year Ended December 31, 2024 2023 2022 (in thousands) Revenue: Subscription $ 922,091 $ 729,112 $ 535,009 Services 41,551 47,840 50,935 Total revenue 963,642 776,952 585,944 Cost of revenue: Subscription (1) 208,600 176,004 146,324 Services (1) 48,870 53,666 56,091 Total cost of revenue 257,470 229,670 202,415 Gross profit 706,172 547,282 383,529 Operating expenses: Research and development (1) 421,237 348,752 264,041 Sales and marketing (1) 547,379 504,929 456,452 General and administrative (1) 156,703 137,520 125,710 Restructuring and other related charges - 34,854 - Total operating expenses 1,125,319 1,026,055 846,203 Operating loss (419,147 ) (478,773 ) (462,674 ) Other income, net 84,486 72,099 16,416 Loss before income taxes (334,661 ) (406,674 ) (446,258 ) Provision for income taxes 10,404 36,072 6,293 Net loss $ (345,065 ) $ (442,746 ) $ (452,551 ) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2024 2023 2022 (in thousands) Cost of revenue - subscription $ 27,133 $ 25,620 $ 23,136 Cost of revenue - services 9,306 11,096 9,253 Research and development 166,468 139,809 101,499 Sales and marketing 134,015 124,568 99,366 General and administrative 58,738 48,740 44,402 Total stock-based compensation expense $ 395,660 $ 349,833 $ 277,656 81 Table of Contents The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated: Year Ended December 31, 2024 2023 2022 Revenue: Subscription 96 % 94 % 91 % Services 4 6 9 Total revenue 100 100 100 Cost of revenue: Subscription 22 23 25 Services 5 7 10 Total cost of revenue 27 30 35 Gross profit 73 70 65 Operating expenses: Research and development 44 45 45 Sales and marketing 57 65 78 General and administrative 16 18 21 Restructuring and other related charges 0 4 0 Total operating expenses 117 132 144 Operating loss (43 ) (62 ) (79 ) Other income, net 9 9 3 Loss before income taxes (35 ) (52 ) (76 ) Provision for income taxes 1 5 1 Net loss (36 )% (57 )% (77 )% __________________________________________________ Note: Certain figures may not sum due to rounding.
Through our Cybersecurity Risk Management Team, we identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and the Company’s risk profile using various methods including, for example manual and automated tools, conducting scans of threat environment, use of external intelligence feeds, internal and third-party threat assessments and evaluating our industry’s risk profile, subscribing to reports and services that identify cybersecurity threats, red/blue team testing and tabletop incident response exercises, evaluating threats reported to us, and conducting red/blue team testing and tabletop incident response exercises.
Through our Cybersecurity Risk Management Team, we identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and the Company’s risk profile using various methods including, for example manual and automated tools, conducting scans of threat environment, use of external intelligence feeds, internal and third-party threat assessments and evaluating our industry’s risk profile, subscribing to reports and services that identify cybersecurity threats, evaluating threats reported to us, and conducting red/blue team testing and tabletop incident response exercises.
Depending on the particular environment and systems, we implement and maintain various technical, physical, and organizational measures, processes, standards, and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: network security controls, system monitoring, incident detection and response, incident response policy, disaster recovery and business continuity plans, vulnerability management policy, penetration testing, encryption of data, data segregation controls, employee training, physical security cyber insurance, vendor risk management program, risk assessments, implementation of security standards/certifications, access controls, dedicated cybersecurity staff, and asset management, tracking and disposal.
Depending on the particular environment and system, we implement and maintain various technical, physical, and organizational measures, processes, standards, and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: network security controls, system monitoring, incident detection and response, incident response policy, disaster recovery and business continuity plans, vulnerability management policy, penetration testing, encryption of data, data segregation controls, employee training, physical security cyber insurance, vendor risk management program, risk assessments, implementation of security standards/certifications, access controls, dedicated cybersecurity staff, and asset management, tracking and disposal.
For example, security management works with senior management to prioritize our risk management processes, mitigate cybersecurity threats that are more likely to lead to a material impact to our business, and reports to the audit committee of the board of directors, which reviews our overall risk management framework and programs.
For example, security management works with senior management to prioritize our risk management processes and mitigate cybersecurity threats that are more likely to lead to a material impact to our business, and reports to the audit committee of the board of directors, which reviews our overall risk management framework and programs.
The Chief Information Security Officer is responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into the Company’s overall risk management strategy, and communicating key priorities to relevant personnel. The Chief Information Security Officer is also responsible for approving budgets, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
The Chief Information Security Officer is responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into the Company’s overall risk management strategy, and communicating key priorities to relevant personnel. The Chief Information Security Officer is also responsible for approving budgets, helping to prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
Other Income (Expense), Net Other income (expense), net consists primarily of interest earned on our cash and cash equivalents and marketable securities, including amortization of premiums and accretion of discounts on marketable securities, interest expense from amortization of debt issuance costs, gains and losses from foreign currency transactions, and realized gains and losses on marketable securities.
Other Income (Expense), Net Other income (expense), net consists primarily of interest earned on our cash and cash equivalents and marketable securities, including amortization of premiums and accretion of discounts on marketable securities, amortization of debt issuance costs, gains and losses from foreign currency transactions, and realized gains and losses on marketable securities.
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our subscriptions and services, changes in our revenue mix, including the mix of revenue between our Confluent Platform, Confluent Cloud, and service offerings, timing and amount of usage of third-party cloud infrastructure resources, infrastructure optimization, and timing and extent of our investments in growth and scaling our business.
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our subscriptions and services, changes in our revenue mix, including the mix of revenue between our Confluent Cloud, Confluent Platform, WarpStream, and service offerings, timing and amount of usage of third-party cloud infrastructure resources, infrastructure optimization, and timing and extent of our investments in growth and scaling our business.
We expect our gross margin to fluctuate over time depending on the factors described above. 79 Table of Contents Operating Expenses Our operating expenses consist of research and development, sales and marketing, general and administrative expenses, and restructuring and other related charges. Personnel-related costs are the most significant component of each category of operating expenses.
We expect our gross margin to fluctuate over time depending on the factors described above. 79 Table of Contents Operating Expenses Our operating expenses consist of research and development, sales and marketing, general and administrative expenses, and restructuring and other related charges. Personnel-related costs are generally the most significant component of each category of operating expenses.
The dollar-based NRR also includes the effect of annualizing actual consumption of Confluent Cloud in the last three months of the applicable period, but excludes ARR from new customers in the current period. Our dollar-based NRR is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.
The dollar-based NRR also includes the effect of annualizing actual consumption of Confluent Cloud and WarpStream in the last three months of the applicable period, but excludes ARR from new customers in the current period. Our dollar-based NRR is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.
Cash Flows from Financing Activities Cash provided by financing activities of $102.4 million for the year ended December 31, 2023 was primarily due to $73.9 million in proceeds from the issuance of common stock upon exercises of stock options and $28.7 million in proceeds from the issuance of common stock under our employee stock purchase plan .
Cash provided by financing activities of $102.4 million for the year ended December 31, 2023 was primarily due to $73.9 million in proceeds from the issuance of common stock upon exercises of stock options and $28.7 million in proceeds from the issuance of common stock under our employee stock purchase plan .
Our cybersecurity risk assessment and management processes are implemented and maintained by certain Company management, including the Chief Information Security Officer, who oversees the Company’s Trust, Security and Reliability department, and the members of the Cybersecurity Risk Management Team. Our Trust, Security and Reliability department has significant collective experience in relevant computer science and engineering disciplines and cybersecurity matters.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain Company management, including the Chief Information Security Officer, who oversees the Company’s Trust and Security department, and the members of the Cybersecurity Risk Management Team. Our Trust and Security department has significant collective experience in relevant computer science and engineering disciplines and cybersecurity matters.
This expansion often generates a natural network effect in which the value of our platform to a customer increases as more use cases are adopted, more users and teams are onboarded, more applications and systems are connected, and more data is added.
This expansion often generates a natural network effect in which the value of our Data Streaming Platform to a customer increases as more use cases are adopted, more users and teams are onboarded, more applications and systems are connected, and more data is added.
Business and Macroeconomic Conditions Our business and financial condition have been, and we believe will continue to be, impacted by adverse and uncertain macroeconomic conditions, including higher inflation, higher interest rates, fluctuations or volatility in capital markets or foreign currency exchange rates, and geopolitical events around the world, such as the ongoing conflicts between Russia and Ukraine and in the Middle East.
Business and Macroeconomic Conditions Our business and financial condition have been, and we believe will continue to be, impacted by adverse and uncertain macroeconomic conditions, including high inflation, high interest rates, fluctuations or volatility in capital markets or foreign currency exchange rates, and geopolitical events around the world, such as the ongoing conflicts between Russia and Ukraine and in the Middle East.
Our cash, cash equivalents, and marketable securities consist of bank deposits, money market funds, corporate notes and bonds, commercial paper, U.S. agency obligations, and U.S. treasury securities .
Our cash, cash equivalents, and marketable securities consist of bank deposits, money market funds, corporate notes and bonds, commercial paper, U.S. agency obligations, U.S. treasury securities, and time deposits .
The performance graph below compares the cumulative total return on our Class A common stock from June 24, 2021 (the date our Class A common stock commenced trading on the Nasdaq Global Select Market) through December 31, 2023 with (i) the Nasdaq Composite Index and (ii) the Nasdaq Computer Index, assuming the investment of $100 in our Class A common stock and in both of the other indices on June 24, 2021 and the reinvestment of dividends.
The performance graph below compares the cumulative total return on our Class A common stock from June 24, 2021 (the date our Class A common stock commenced trading on the Nasdaq Global Select Market) through December 31, 2024 with (i) the Nasdaq Composite Index and (ii) the Nasdaq Computer Index, assuming the investment of $100 in our Class A common stock and in both of the other indices on June 24, 2021 and the reinvestment of dividends.
Our ability to attract new customers will depend on and has historically been impacted by a number of factors, including our success in recruiting and scaling our sales and marketing organization, our ability to accelerate ramp time of our sales force, expansion and refinement of our go-to-market strategies to reach additional customer opportunities and to focus on consumption over commitments, our ability to enhance our brand and educate potential customers about the benefits and reduced total cost of ownership of our offering compared to alternatives for data in motion, such as Apache Kafka, our ability to effectively and competitively price our offering, our ability to expand features and functionalities of our offering, our ability to grow and harness our partner ecosystem, macroeconomic uncertainty and challenges, and competitive dynamics in our target markets.
Our ability to attract new customers will depend on and has historically been impacted by a number of factors, including our success in recruiting and scaling our sales and marketing organization, our ability to accelerate ramp time of our sales force, expansion and refinement of our go-to-market strategies to reach additional customer opportunities and to focus on consumption over commitments, our ability to enhance our brand and educate potential customers about the benefits and reduced total cost of ownership of our offerings compared to alternatives for data in motion, such as Apache Kafka, Apache Flink, and Apache Iceberg, our ability to effectively and competitively price our offerings, our ability to expand features and functionalities of our offerings, our ability to grow and harness our partner ecosystem, macroeconomic uncertainty and challenges, and competitive dynamics in our target markets.
As a measure of our ability to scale with our customers and attract large enterprises to our offering, we count the number of customers that contributed $100,000 or greater in ARR as of period end. Our customer count may also fluctuate due to acquisitions, consolidations, spin-offs, and other market activity.
As a measure of our ability to scale with our customers and attract large enterprises to our offerings, we count the number of customers that contributed $100,000 or greater in ARR as of period end. Our customer count may also fluctuate due to acquisitions, consolidations, spin-offs, and other market activity.
We do not enter into investments for trading or speculative purposes. The effect of a hypothetical 10% relative change in interest rates would not have a material impact on the fair value of our cash equivalents and marketable securities as of December 31, 2023.
We do not enter into investments for trading or speculative purposes. The effect of a hypothetical 10% relative change in interest rates would not have a material impact on the fair value of our cash equivalents and marketable securities as of December 31, 2024.
The Chief Information Security Officer, in coordination with the Chief Technology Officer, Chief Financial Officer, Chief Accounting Officer, certain members of the Company’s legal team and certain third-party service providers (“Cybersecurity Risk Management Team”), is primarily responsible for identifying, assessing, and managing the Company’s cybersecurity threats and risks.
The Chief Information Security Officer, in coordination with our Chief Financial Officer, Chief Accounting Officer, certain members of the Company’s legal team and certain third-party service providers (“Cybersecurity Risk Management Team”), is primarily responsible for identifying, assessing, and managing the Company’s cybersecurity threats and risks.
Increasing Adoption of Confluent Cloud We believe our cloud-native Confluent Cloud offering represents an important growth opportunity for our business. Organizations are increasingly looking for a fully-managed offering to seamlessly leverage data in motion across a variety of environments. In some cases, customers that have been self-managing deployments through Confluent Platform subsequently have become Confluent Cloud customers.
Increasing Adoption of Confluent Cloud We believe our cloud-native Confluent Cloud offering continues to represent an important growth opportunity for our business. Organizations are increasingly looking for a fully-managed offering to seamlessly leverage data in motion across a variety of environments. In some cases, customers that have been self-managing deployments through Confluent Platform subsequently have become Confluent Cloud customers.
The increase in revenue was primarily from sales to existing customers and the remaining increase was attributable to sales to new customers. Sales to new customers represent the revenue recognized from customers acquired in the 12 months prior to each discrete quarter end within the year ended December 31, 2023.
The increase in revenue was primarily from sales to existing customers and the remaining increase was attributable to sales to new customers. Sales to new customers represent the revenue recognized from customers acquired in the 12 months prior to each discrete quarter end within the year ended December 31, 2024.
We expect our total revenue may vary from period to period based on, among other things, the timing and size of new subscriptions, the rate of customer renewals and expansions, fluctuations in customer consumption of and adoption trends for our usage-based offering, delivery of professional services, ramp time and productivity of our salesforce, the impact of significant transactions, and seasonality.
We expect our total revenue may vary from period to period based on, among other things, the timing and size of new subscriptions, the rate of customer renewals and expansions, fluctuations in customer consumption of and adoption trends for our usage-based offering, delivery of professional services, ramp time and productivity of our sales force, the impact of significant transactions, and seasonality.
We offer customers a free cloud trial and a pay-as-you-go arrangement to encourage adoption and expand via new use cases to increase usage over time. We will continue to leverage our cloud-native differentiation to drive our growth. We expect Confluent Cloud’s contribution to our subscription revenue to increase over time.
We offer users a free cloud trial and a pay-as-you-go arrangement to encourage adoption and expand via new use cases to increase usage over time. We will continue to leverage our cloud-native differentiation to drive our growth. We expect Confluent Cloud’s contribution to our revenue to continue to increase over time.
See Note 9, Commitments and Contingencies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information. We have generated significant operating losses and negative cash flows from operations. As of December 31, 2023, we had an accumulated deficit of $1,644.2 million.
See Note 9, Commitments and Contingencies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information. We have generated significant operating losses and negative cash flows from operations. As of December 31, 2024, we had an accumulated deficit of $1,989.2 million.
The audit committee receives regular reports from the Chief Information Security Officer concerning the Company’s significant cybersecurity threats and risk and the processes the Company has implemented to address them. The audit committee also receives various reports, summaries or presentations related to cybersecurity threats, risk, and mitigation. It em 2.
The audit committee receives regular reports from the Chief Information Security Officer concerning the Company’s significant cybersecurity threats and risks and the processes the Company has implemented to address them. The audit committee also receives various reports, summaries or presentations related to cybersecurity threats, risks, and mitigation measures. It em 2.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 21, 2024.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 is presented below.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 is presented below.
As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign exchange rates. 88 Table of Contents
As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign exchange rates. 89 Table of Contents
Recent Accounting Pronouncements See Note 2, Basis of Presentation and Summary of Significant Accounting Policies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recent accounting pronouncements. 87 Table of Contents Ite m 7A.
Recent Accounting Pronouncements See Note 2, Basis of Presentation and Summary of Significant Accounting Policies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recent accounting pronouncements. Ite m 7A.
Our ability to retain and expand revenue from existing customers, including through increased consumption of our offering and contractual commitments, will depend on and has historically been impacted by a number of factors, including market acceptance of our offering compared to data-in-motion alternatives, such as Apache Kafka, pricing of our offering, customer satisfaction, expansion of features and functionalities of our offering, competition, macroeconomic conditions, and overall changes in our customers’ spending levels.
Our ability to retain and expand revenue from existing customers, including through increased consumption of our offerings and contractual commitments and renewals, will depend on and has historically been impacted by a number of factors, including market acceptance of our offerings compared to data-in-motion alternatives, such as Apache Kafka, Apache Flink, and Apache Iceberg pricing of our offerings, customer satisfaction, expansion of features and functionalities of our offerings, competition, macroeconomic conditions, and overall changes in our customers’ spending levels.
Our “consumption-oriented” go-to-market model benefits from our self-service motions driven by our cloud-native platform offerings, our widespread mindshare among developers through Apache Kafka, community downloads, and our enterprise sales force. We are able to acquire new customers through seamless and frictionless self-service cloud adoption and free cloud trials, as well as community downloads.
Our “consumption-oriented” go-to-market model benefits from our self-service motions driven by our cloud-native platform offerings, our widespread mindshare among developers through Apache Kafka®, Apache Flink®, and Apache Iceberg®, community downloads, and our enterprise sales force. We acquire new customers through seamless and frictionless self-service cloud adoption and free cloud trials, as well as community downloads.
The substantial majority of our revenue from Confluent Cloud for the years ended December 31, 2023 and 2022 was based on usage-based commitments and is recognized on a usage basis, as usage represents a direct measurement of the value to the customer of the subscription transferred as of a particular date relative to the total value to be delivered over the term of the contract.
The vast majority of our revenue from Confluent Cloud for the years ended December 31, 2024 and 2023 was based on usage-based commitments and is recognized on a usage basis, as usage represents a direct measurement of the value to the customer of the subscription transferred as of a particular date relative to the total value to be delivered over the term of the contract.
Properties Our headquarters are located in Mountain View, California, where we lease approximately 75,475 square feet pursuant to a lease which expires in 2029. We also lease other offices including in London, England, Bengaluru, India and Dubai, United Arab Emirates. Additionally, we hold many office service memberships in numerous other locations globally. We do not own any real property.
Properties Our headquarters are located in Mountain View, California, where we lease approximately 75,475 square feet pursuant to a lease which terminates in 2026. We also lease other offices including in London, England, Bengaluru, India, Dubai, United Arab Emirates, and Singapore. Additionally, we hold many office service memberships in numerous other locations globally. We do not own any real property.
For example, after users get started with our free cloud trial, they can easily convert to become paying customers either online on a pay-as-you-go model or with a commitment contract. Once customers see the benefits of our platform for their initial use cases, they often expand into other use cases and lines of business, divisions, and geographies.
For example, after users get started with our free cloud trial, they can easily convert to become paying customers either online on a pay-as-you-go model or with a commitment contract. Once customers see the benefits of our platform for their initial use cases, we believe that they will expand into other use cases and lines of business, divisions, and geographies.
We have experienced, and may continue to experience, negative impacts from these factors, including longer sales cycles, reduced IT budgets, slowdowns in customer consumption expansion, including fewer new use cases adopted by customers, and generally increased scrutiny on IT spending from existing and potential customers.
We have experienced, and expect to continue to experience, negative impacts from these factors, including longer sales cycles, reduced IT budgets, slowdowns in customer consumption expansion and growth rates, including fewer new use cases adopted by customers, and generally increased scrutiny on IT spending from existing and potential customers.
We discuss subscription revenue under "Components of Results of Operations." 77 Table of Contents Customers with $100,000 or Greater in Annual Recurring Revenue (“ARR”) We define ARR as (1) with respect to Confluent Platform customers, the amount of revenue to which our customers are contractually committed over the following 12 months assuming no increases or reductions in their subscriptions, and (2) with respect to Confluent Cloud customers, the amount of revenue that we expect to recognize from such customers over the following 12 months, calculated by annualizing actual consumption of Confluent Cloud in the last three months of the applicable period, assuming no increases or reductions in usage rate.
We discuss subscription revenue under “Components of Results of Operations.” Customers with $100,000 or Greater in Annual Recurring Revenue (“ARR”) We define ARR as (1) with respect to Confluent Platform customers, the amount of revenue to which our customers are contractually committed over the following 12 months assuming no increases or reductions in their subscriptions, and (2) with respect to Confluent Cloud and WarpStream customers, the amount of revenue that we expect to recognize from such customers over the following 12 months, calculated by annualizing actual consumption of Confluent Cloud and WarpStream in the last three months of the applicable period, assuming no increases or reductions in usage rate.
For these contracts, we allocate the transaction price to each performance obligation on a relative standalone selling price (“SSP”) basis. We consider our determination of SSP to be a critical accounting estimate. SSP is established based on multiple factors, including prices at which we separately sell standalone subscriptions and services.
Our contracts with customers often contain multiple performance obligations. For these contracts, we allocate the transaction price to each performance obligation on a relative standalone selling price (“SSP”) basis. We consider our determination of SSP to be a critical accounting estimate. SSP is established based on multiple factors, including prices at which we separately sell standalone subscriptions and services.
Our revenue growth potential is dependent on the effectiveness of such investments, which include the development of new product features and enhancements, and the continued refinement of our go-to-market strategies, including our accelerated shift to a consumption-oriented sales model for Confluent Cloud.
Our revenue growth potential is dependent on the effectiveness of such investments, which include the development of new product features and enhancements, and the continued refinement of our go-to-market strategies, including for our Data Streaming Platform products and our shift to a consumption-oriented sales model for Confluent Cloud.
More recently, our acquisition of immerok GmbH, an Apache Flink stream processing managed services company, enabled us to re-architect Flink as a cloud-native service on Confluent Cloud, while our Stream Governance suite establishes trust in real-time data movement and maintains stream quality, security, and regulatory compliance.
Additionally, our acquisition of immerok GmbH, an Apache Flink stream processing managed services company, enabled us to re-architect Flink as a cloud-native service on Confluent Cloud and release Confluent Platform for Apache Flink, while our Stream Governance suite establishes trust in real-time data movement and maintains stream quality, security, and regulatory compliance.
The net proceeds from the issuance of the 2027 Notes, after deducting the initial purchasers’ discounts and commissions and debt issuance costs, were $1,080.5 million. As of December 31, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1,900.8 million.
The net proceeds from the issuance of the 2027 Notes, after deducting the initial purchasers’ discounts and commissions and debt issuance costs, were $1,080.5 million. As of December 31, 2024, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1,910.6 million.
If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. 85 Table of Contents The following table summarizes our cash flows for the periods presented: Year Ended December 31, 2023 2022 2021 (in thousands) Net cash used in operating activities $ (103,657 ) $ (157,333 ) $ (105,060 ) Net cash used in investing activities $ (84,851 ) $ (865,805 ) $ (400,583 ) Net cash provided by financing activities $ 102,372 $ 82,241 $ 1,844,514 Cash Flows from Operating Activities We generally invoice our customers annually in advance for our term-based licenses and typically annually in advance or monthly in arrears for our SaaS offering.
If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. 85 Table of Contents The following table summarizes our cash flows for the periods presented: Year Ended December 31, 2024 2023 2022 (in thousands) Net cash provided by (used in) operating activities $ 33,460 $ (103,657 ) $ (157,333 ) Net cash used in investing activities $ (74,978 ) $ (84,851 ) $ (865,805 ) Net cash provided by financing activities $ 79,806 $ 102,372 $ 82,241 Cash Flows from Operating Activities We generally invoice our customers annually in advance for our term-based licenses and typically annually in advance or monthly in arrears for our SaaS offering.
We believe that our dollar-based NRR provides useful information about the evolution of our existing customers and our future growth prospects. Our dollar-based NRR was slightly above 125% as of December 31, 2023, demonstrating our ability to expand within existing customers.
We believe that our dollar-based NRR provides useful information about the evolution of our existing customers and our future growth prospects. Our dollar-based NRR was 117% as of December 31, 2024, demonstrating our ability to expand within existing customers.
Restructuring and Other Related Charges Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) Restructuring and other related charges $ 34,854 $ - $ 34,854 100% Percentage of revenue 4% 0% Restructuring and other related charges increased by $34.9 million during the year ended December 31, 2023 compared to the year ended December 31, 2022 due to our restructuring actions to adjust our cost structure and real estate footprint in 2023.
Restructuring and Other Related Charges Year Ended December 31, Change 2024 2023 $ % (in thousands, except percentages) Restructuring and other related charges $ - $ 34,854 $ (34,854 ) (100)% Percentage of revenue 0% 4% Restructuring and other related charges decreased by $34.9 million during the year ended December 31, 2024 compared to the year ended December 31, 2023 as our restructuring actions to adjust our cost structure and real estate footprint were taken in 2023.
To reduce the impact of foreign currency fluctuations, we established a hedging program in December 2022. See Note 2 and Note 5 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Our hedging program reduces but does not eliminate the impact of currency exchange rate movements.
See Note 2 and Note 5 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Our hedging program reduces but does not eliminate the impact of currency exchange rate movements.
We also expect a greater increase in our sales and marketing expenses in the coming quarters as we shift our sales compensation plan to be oriented toward consumption for Confluent Cloud, which we expect will result in higher upfront expense recognition from consumption-oriented sales commissions. General and Administrative .
We also expect a greater increase in our sales and marketing expenses as a result of shifting our sales compensation plan to be oriented toward consumption for Confluent Cloud, which results in higher upfront expense recognition from consumption-oriented sales commissions. General and Administrative .
Cash Flows from Investing Activities Cash used in investing activities of $84.9 million for the year ended December 31, 2023 was primarily due to purchases of marketable securities of $1,586.7 million, cash paid for business combinations, net of cash acquired of $55.8 million, and capitalized internal-use software development costs of $17.8 million, partially offset by maturities of marketable securities of $1,578.3 million. 86 Table of Contents Cash used in investing activities of $865.8 million for the year ended December 31, 2022 was primarily due to purchases of marketable securities of $2,051.9 million and capitalized internal-use software development costs of $10.3 million, partially offset by maturities of marketable securities of $1,200.6 million.
Cash used in investing activities of $84.9 million for the year ended December 31, 2023 was primarily due to purchases of marketable securities of $1,586.7 million, cash paid for business combinations, net of cash acquired of $55.8 million, and capitalized internal-use software development costs of $17.8 million, partially offset by maturities of marketable securities of $1,578.3 million.
Cost of services revenue primarily includes personnel-related costs, including salaries, bonuses, benefits, and stock-based compensation, for employees associated with our professional services and education services, costs of third-party consultants and partners who supplement our services delivery team, and allocated overhead. We expect our cost of services revenue to increase in absolute dollars as our services revenue increases.
Cost of services revenue primarily includes personnel-related costs, including salaries, bonuses, benefits, and stock-based compensation, for employees associated with our professional services and education services, costs of third-party consultants and partners who supplement our services delivery team, and allocated overhead.
Customers with usage-based commitments are typically billed annually in advance or monthly in arrears, and we recognize revenue from such subscriptions based on usage by the customer. As a result, our revenue may fluctuate from period to period due to varying patterns of customer consumption. We are focused on the acquisition of new customers and expanding within our current customers.
Pay-as-you-go customers are billed, and revenue from them is recognized, based on usage. Customers with usage-based commitments are typically billed annually in advance or monthly in arrears, and we recognize revenue from such subscriptions based on usage by the customer. As a result, our revenue may fluctuate from period to period due to varying patterns of customer consumption.
We generate our revenue primarily from the sale of subscriptions to our data streaming platform, which can be deployed across on-premise and cloud environments. Confluent Platform is an enterprise-ready, self-managed software offering that can be deployed in our customers’ on-premise, private cloud, and public cloud environments.
We generate our revenue primarily from the sale of subscriptions to our Data Streaming Platform, designed to span across all environments. Confluent Cloud is a fully-managed, cloud-native software-as-a-service (“SaaS”) offering available on all of the leading cloud providers. Confluent Platform is an enterprise-ready, self-managed software offering that can be deployed in our customers’ on-premise, private cloud, and public cloud environments.
Our Confluent Cloud revenue represented 45%, 36%, and 24% of our total revenue for the years ended December 31, 2023, 2022, and 2021, respectively.
Our Confluent Cloud revenue represented 51% and 45% of our total revenue for the years ended December 31, 2024 and 2023, respectively.
Interest Rate Risk As of December 31, 2023, we had $1,900.8 million of cash, cash equivalents, and marketable securities consisting of money market funds, corporate notes and bonds, commercial paper, U.S. agency obligations, and U.S. treasury securities. Our cash, cash equivalents, and marketable securities are held for working capital purposes.
Interest Rate Risk As of December 31, 2024, we had $1,910.6 million of cash, cash equivalents, and marketable securities in a variety of securities including money market funds, corporate notes and bonds, commercial paper, U.S. agency obligations, U.S. treasury securities, and time deposits. Our cash, cash equivalents, and marketable securities are held for working capital purposes.
The increase in personnel-related costs was mainly driven by increased headcount and an increase of $38.3 million in stock-based compensation expense, net of amounts capitalized. 83 Table of Contents Sales and Marketing Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) Sales and marketing $ 504,929 $ 456,452 $ 48,477 11% Percentage of revenue 65% 78% Sales and marketing expenses increased by $48.5 million during the year ended December 31, 2023 compared to the year ended December 31, 2022.
The increase in personnel-related costs was mainly driven by increased headcount and an increase of $26.7 million in stock-based compensation expense, net of amounts capitalized. 83 Table of Contents Sales and Marketing Year Ended December 31, Change 2024 2023 $ % (in thousands, except percentages) Sales and marketing $ 547,379 $ 504,929 $ 42,450 8% Percentage of revenue 57% 65% Sales and marketing expenses increased by $42.5 million during the year ended December 31, 2024 compared to the year ended December 31, 2023.
As we recognize revenue from Confluent Cloud based on usage, our revenue and results of operations have in the past fluctuated and may continue to fluctuate from period to period due to varying patterns of customer consumption and adoption trends, including due to impacts from macroeconomic uncertainty and related effects on customer IT spending, as described above.
As we recognize revenue from Confluent Cloud based on usage, our revenue and results of operations have in the past fluctuated and may continue to fluctuate from period to period due to the usage-based nature of Confluent Cloud, our shift to a consumption-oriented sales model for Confluent Cloud, and varying patterns of customer consumption and adoption trends, including due to impacts from macroeconomic uncertainty and related effects on customer IT spending, as described above. 76 Table of Contents Growing Our Customer Base We are intensely focused on continuing to grow our customer base.
Cash provided by financing activities of $82.2 million for the year ended December 31, 2022 was primarily due to $42.9 million in proceeds from the issuance of common stock upon exercises of stock options and $40.9 million in proceeds from the issuance of common stock under our employee stock purchase plan .
Cash Flows from Financing Activities Cash provided by financing activities of $79.8 million for the year ended December 31, 2024 was due to $55.8 million in proceeds from the issuance of common stock upon exercises of stock options and $24.0 million in proceeds from the issuance of common stock under our employee stock purchase plan .
In June 2021, our initial public offering resulted in proceeds of $786.6 million, net of underwriting discounts and commissions. In December 2021, we issued $1.1 billion aggregate principal amount of 0% convertible senior notes due 2027 (the “2027 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
In December 2021, we issued $1.1 billion aggregate principal amount of 0% convertible senior notes due 2027 (the “2027 Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
As of December 31, 2023, our purchase obligations were $743.6 million, of which $162.8 million is expected to be paid within 12 months and the remainder thereafter. As of December 31, 2023, our operating lease payment obligations were $26.8 million, of which $8.8 million is expected to be paid within 12 months and the remainder thereafter.
As of December 31, 2024, our purchase obligations were $610.6 million, of which $193.4 million is expected to be paid within 12 months and the remainder thereafter. As of December 31, 2024, our operating lease payment obligations were $18.7 million, of which $9.4 million is expected to be paid within 12 months and the remainder thereafter.
Our non-cash charges included $277.7 million of stock-based compensation expense, net of amounts capitalized, $37.3 million of amortization of deferred contract acquisition costs, $8.6 million of non-cash operating lease costs, and $7.6 million for depreciation and amortization expense, partially offset by $8.9 million of net accretion of discounts and amortization of premiums on marketable securities.
Our non-cash charges included $395.7 million of stock-based compensation expense, net of amounts capitalized, $54.3 million of amortization of deferred contract acquisition costs, and $22.1 million of depreciation and amortization of property equipment and acquired intangible assets, partially offset by $37.8 million of net accretion of discounts on marketable securities.
We recognize a portion of the revenue from our term-based license subscriptions at a point in time, upon delivery and transfer of control of the underlying license to the customer, which is typically the effective start date. Revenue from PCS, which represents a substantial majority of the revenue from our term-based license subscriptions, is recognized ratably over the contract term.
Revenue from Confluent Platform includes revenue from term-based licenses and post-contract customer support, maintenance, and upgrades, referred to together as PCS. We recognize a portion of the revenue from our term-based license subscriptions at a point in time, upon delivery and transfer of control of the underlying license to the customer, which is typically the effective start date.
Holders of Record As of February 7, 2024, there were 76 stockholders of record of our Class A common stock and 39 stockholders of record of our Class B common stock.
Holders of Record As of February 4, 2025, there were 64 stockholders of record of our Class A common stock and 27 stockholders of record of our Class B common stock.
We cannot be certain how long these uncertain macroeconomic conditions and geopolitical events, and their resulting effects on our industry, our financial results, our business strategy, and customers will persist.
We typically experience more consumption volatility during periods of increased customer scrutiny on IT spending. We cannot be certain how long these uncertain macroeconomic conditions, geopolitical events, and IT spending and consumption patterns, and their resulting effects on our industry, our financial results, our business strategy, and customers, will persist.
Research and Development Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) Research and development $ 348,752 $ 264,041 $ 84,711 32% Percentage of revenue 45% 45% Research and development expenses increased by $84.7 million during the year ended December 31, 2023 compared to the year ended December 31, 2022.
Research and Development Year Ended December 31, Change 2024 2023 $ % (in thousands, except percentages) Research and development $ 421,237 $ 348,752 $ 72,485 21% Percentage of revenue 44% 45% Research and development expenses increased by $72.5 million during the year ended December 31, 2024 compared to the year ended December 31, 2023.
The substantial majority of our sales contracts are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. A portion of our operating expenses is incurred outside the United States and denominated in foreign currencies and is subject to fluctuations due to changes in foreign exchange rates.
The substantial majority of our sales contracts are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk.
Services revenue consists of revenue from professional services and education services, which are generally sold on a time-and-materials basis. Revenue for professional services and education services is recognized as these services are delivered.
Pay-as-you-go and WarpStream arrangements have historically represented an immaterial portion of our subscription revenue. Services Revenue . Services revenue consists of revenue from professional services and education services, which are generally sold on a time-and-materials basis. Revenue for professional services and education services is recognized as these services are delivered.
This increase was primarily due to an increase of $38.2 million in personnel-related costs and allocated overhead costs, an increase of $8.5 million in amortization of deferred contract acquisition costs, and an increase of $4.3 million in acquisition-related compensation costs, offset by a decrease of $2.3 million in travel-related costs.
This increase was primarily due to an increase of $24.0 million in personnel-related costs and allocated overhead costs, an increase of $8.4 million in amortization of deferred contract acquisition costs, an increase of $4.7 million in travel-related costs, and an increase of $3.7 million in marketing and event expenses .
We had approximately 4,960, 4,530, and 3,470 customers as of December 31, 2023, 2022, and 2021, respectively, representing year-over-year growth of 9% and 31%, respectively. We have experienced significant growth, with revenue of $777.0 million, $585.9 million, and $387.9 million for the years ended December 31, 2023, 2022, and 2021, respectively, representing year-over-year growth of 33% and 51%, respectively.
We had approximately 5,800 and 4,960 customers as of December 31, 2024 and 2023, respectively, representing year-over-year growth of 17%. We have experienced significant growth, with revenue of $963.6 million and $777.0 million for the years ended December 31, 2024 and 2023, respectively, representing year-over-year growth of 24%.
General and Administrative Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) General and administrative $ 137,520 $ 125,710 $ 11,810 9% Percentage of revenue 18% 21% General and administrative expenses increased by $11.8 million during the year ended December 31, 2023 compared to the year ended December 31, 2022.
General and Administrative Year Ended December 31, Change 2024 2023 $ % (in thousands, except percentages) General and administrative $ 156,703 $ 137,520 $ 19,183 14% Percentage of revenue 16% 18% General and administrative expenses increased by $19.2 million during the year ended December 31, 2024 compared to the year ended December 31, 2023.
To navigate more challenging macroeconomic conditions, we intend to take a disciplined approach in investing to grow our business to take advantage of our expansive market opportunity while also optimizing for improvements in profitability, margins, and cash flow, including by streamlining our operating expenses.
To navigate more challenging macroeconomic conditions, we intend to take a disciplined approach in investing to grow our business to take advantage of our expansive market opportunity while also optimizing for improvements in profitability, margins, and cash flow, including by streamlining our operating expenses. 77 Table of Contents Key Business Metrics We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure our performance, and make strategic decisions.
This increase was primarily due to an increase of $11.1 million in personnel-related costs and allocated overhead costs, mainly driven by an increase of $4.3 million in stock-based compensation expense and the increase of average headcount in 2023 as compared with 2022 .
This increase was primarily due to an increase of $18.0 million in personnel-related costs and allocated overhead costs, mainly driven by increased headcount and an increase of $10.0 million in stock-based compensation expense.
See Note 13 to our consolidated financial statements for further information. We maintain a full valuation allowance on our U.S. and U.K. deferred tax assets. Other than the tax expense related to an intra-group transfer of acquired intellectual property in 2023, the most significant component of our tax expense is income taxes in various foreign jurisdictions.
For the year ended December 31, 2023, tax expense of $26.4 million was related to an intra-group transfer of acquired intellectual property. See Note 13 to our consolidated financial statements for further information. The most significant component of our tax expense is income taxes in various foreign jurisdictions.
Cash used in operating activities of $103.7 million for the year ended December 31, 2023 primarily consisted of our net loss of $442.7 million, adjusted for non-cash charges of $394.8 million , and net cash outflows of $55.8 million from changes in our operating assets and liabilities, net of the effects of business combinations.
Cash provided by operating activities of $33.5 million for the year ended December 31, 2024 primarily consisted of our net loss of $345.1 million, adjusted for non-cash charges of $445.7 million , and net cash outflows of $67.2 million from changes in our operating assets and liabilities, net of the effects of a business combination.
Our customer count treats affiliated entities with the same parent organization as a single customer and includes pay-as-you-go customers. 76 Table of Contents Retaining and Expanding Revenue from Existing Customers Our business model and future growth are driven by customer renewals and increasing existing customer consumption and subscriptions over time, referred to as land-and-expand.
Retaining and Expanding Revenue from Existing Customers Our business model and future growth are driven by customer renewals and increasing existing customer consumption and subscriptions over time, referred to as land-and-expand.
Our subscription gross margin increased primarily due to efficiencies in personnel-related costs, offset by a change in our revenue mix toward Confluent Cloud which has a lower gross margin. Our services gross margin decreased primarily due to personnel-related costs, including stock-based compensation expense, growing at a higher rate than services revenue.
This decrease was primarily due to a decrease in personnel-related costs and allocated overhead costs driven by decreased headcount . Our subscription gross margin increased primarily due to efficiencies in personnel-related costs offset by a change in our revenue mix toward Confluent Cloud which has a lower gross margin.
This increase was primarily due to an increase of $59.6 million in personnel-related costs and allocated overhead costs and an increase of $19.2 million in acquisition-related compensation costs.
This increase was primarily due to an increase of $48.5 million in personnel-related costs and allocated overhead costs, an increase of $10.4 million in software license costs, an increase of $5.6 million in acquisition-related compensation costs, and an increase of $4.3 million in third-party cloud infrastructure costs.
Growing Our Customer Base We are intensely focused on continuing to grow our customer base. We have invested and will continue to invest in our sales and marketing efforts, including pipeline generation and execution, and developer community outreach, which are critical to driving customer acquisition.
We have invested and will continue to invest in our sales and marketing efforts, including pipeline generation and execution, and developer community outreach, which are critical to driving customer acquisition. We historically focused on large enterprise customers with significant expansion opportunities and built a go-to-market motion around this approach.
Over the near term, we expect our dollar-based NRR to be tempered as we shift to a consumption-oriented sales model for Confluent Cloud. Our methodology for calculating ARR may result in increased volatility in NRR as our customers’ consumption trends have experienced and may continue to experience fluctuations across quarters.
Over the near term, we expect our dollar-based NRR to be tempered as a result of our shift to a consumption-oriented sales model for Confluent Cloud.
Our subscriptions primarily have terms of one to three years, and are generally non-cancelable and non-refundable. We also provide pay-as-you-go arrangements, which consist of month-to-month SaaS contracts. These arrangements have historically represented an immaterial portion of our subscription revenue. Services Revenue .
Revenue from PCS, which represents a substantial majority of the revenue from our term-based license subscriptions, is recognized ratably over the contract term. Our subscriptions primarily have terms of one to three years, and are generally non-cancelable and non-refundable. We also provide pay-as-you-go arrangements, which consist of month-to-month SaaS contracts.
The increase in personnel-related costs was mainly driven by an increase of $25.2 million in stock-based compensation expense and the increase of average headcount in 2023 as compared with 2022 .
The increase in personnel-related costs was mainly driven by increased headcount, an increase of $15.8 million in commissions expense, and a $9.4 million increase in stock-based compensation expense.
Services revenue decreased by $3.1 million during the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a decrease in delivery of professional services. 82 Table of Contents Cost of Revenue, Gross Profit, and Gross Margin Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) Cost of revenue Subscription $ 176,004 $ 146,324 $ 29,680 20% Services 53,666 56,091 (2,425 ) (4)% Total cost of revenue $ 229,670 $ 202,415 $ 27,255 13% Gross profit $ 547,282 $ 383,529 $ 163,753 43% Year Ended December 31, 2023 2022 Gross margin Subscription 76% 73% Services (12)% (10)% Total gross margin 70% 65% Cost of subscription revenue increased by $29.7 million during the year ended December 31, 2023 compared to the year ended December 31, 2022.
Services revenue decreased by $6.3 million during the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to a decrease in delivery of professional services. 82 Table of Contents Cost of Revenue, Gross Profit, and Gross Margin Year Ended December 31, Change 2024 2023 $ % (in thousands, except percentages) Cost of revenue Subscription $ 208,600 $ 176,004 $ 32,596 19% Services 48,870 53,666 (4,796 ) (9)% Total cost of revenue $ 257,470 $ 229,670 $ 27,800 12% Gross profit $ 706,172 $ 547,282 $ 158,890 29% Year Ended December 31, 2024 2023 Gross margin Subscription 77% 76% Services (18)% (12)% Total gross margin 73% 70% Cost of subscription revenue increased by $32.6 million during the year ended December 31, 2024 compared to the year ended December 31, 2023.
Other Income (Expense), Net Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) Other income, net $ 72,099 $ 16,416 $ 55,683 339% Other income, net increased by $55.7 million during the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to higher yields on marketable securities. 84 Table of Contents Provision for (Benefit from) Income Taxes Year Ended December 31, Change 2023 2022 $ % (in thousands, except percentages) Loss before income taxes $ (406,674 ) $ (446,258 ) $ 39,584 (9)% Provision for income taxes 36,072 6,293 29,779 473% Effective tax rate (8.9)% (1.4)% Provision for income taxes increased by $29.8 million during the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to tax expense of $26.4 million related to an intra-group transfer of acquired intellectual property.
Other Income (Expense), Net Year Ended December 31, Change 2024 2023 $ % (in thousands, except percentages) Other income, net $ 84,486 $ 72,099 $ 12,387 17% Other income, net increased by $12.4 million during the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to higher yields on cash, cash equivalents, and marketable securities. 84 Table of Contents Provision for (Benefit from) Income Taxes Year Ended December 31, Change 2024 2023 $ % (in thousands, except percentages) Loss before income taxes $ (334,661 ) $ (406,674 ) $ 72,013 (18)% Provision for income taxes 10,404 36,072 (25,668 ) (71)% Effective tax rate (3.1)% (8.9)% Provision for income taxes decreased by $25.7 million during the year ended December 31, 2024 compared to the year ended December 31, 2023.
Confluent Cloud customers may purchase subscriptions either without a commitment contract on a month-to-month basis, which we refer to as pay-as-you-go, or under a usage-based commitment contract of at least one year in duration, in which customers commit to a fixed monetary amount at specified per-usage rates. Pay-as-you-go customers are billed, and revenue from them is recognized, based on usage.
All of these offerings can be leveraged both individually in their respective environments and collectively as a single unified Data Streaming Platform. 74 Table of Contents Confluent Cloud and WarpStream customers may purchase subscriptions either without a commitment contract on a month-to-month basis, which we refer to as pay-as-you-go, or under a usage-based commitment contract of at least one year in duration, in which customers commit to specified per-usage rates.
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