Business Wire | Aug 5, 2021 04:03PM EDT

Confluent Announces Second Quarter 2021 Financial Results

Aug. 05, 2021

MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Aug. 05, 2021--Confluent, Inc. (NASDAQ: CFLT), the platform for data in motion, today announced financial results for its second quarter 2021, ended June 30, 2021.

"Data within modern businesses is in constant motion, flowing across systems, environments, and applications each time a customer clicks, types or swipes," said Jay Kreps, co-founder and CEO, Confluent. "Our strong second quarter shows our vision of helping every organization set their data in motion is resonating, reflected by the 104% year-over-year growth in total customers. Confluent is the central nervous system that connects all the applications, systems, and data layers for companies succeeding in today's digital-first world."

"The execution of our land and expand strategy drove accelerated top-line growth, including 72% year-over-year growth in remaining performance obligations and 64% year-over-year growth in total revenue," said Steffan Tomlinson, CFO, Confluent. "Organizations are increasingly turning to Confluent Cloud to harness the power of data in motion. During the quarter, Confluent Cloud revenue growth accelerated to 200% year over year and revenue mix increased to 22% of total revenue."

Second Quarter 2021 Financial Highlights(In millions, except per share data)

Q2 2021 Q2 2020 Y/Y Change

Total Revenue $88.3 $53.9 64%

Remaining Performance Obligations $327.2 $190.6 72%

GAAP Operating Loss $(86.0) $(27.5) $(58.5)

Non-GAAP Operating Loss $(36.8) $(20.4) $(16.4)

GAAP Net Loss Per Share $(0.74) $(0.25) $(0.49)

Non-GAAP Net Loss Per Share $(0.31) $(0.19) $(0.12)

Net Cash Used in Operating Activities $(43.2) $(21.5) $(21.7)

Free Cash Flow $(45.4) $(22.7) $(22.7)

A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is provided in the financial statement tables included in this press release. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section titled "Non-GAAP Financial Measures."

Financial OutlookFor the third quarter and fiscal year 2021, Confluent expects:

Q3 2021 Outlook Fiscal 2021 Outlook

Total Revenue $89-$91 million $347-$351 million

Non-GAAP Operating Loss $(62)-$(60) million $(199)-$(195) million

Non-GAAP Net Loss Per Share $(0.24)-$(0.23) $(1.07)-$(1.05)

A reconciliation of forward-looking non-GAAP operating loss and non-GAAP net loss per share to the most directly comparable GAAP measures is not available without unreasonable effort, as certain items cannot be reasonably predicted because of their high variability, complexity and low visibility. In particular, the measures and effects of our stock-based compensation expense specific to our equity compensation awards and employer payroll tax-related items on employee stock transactions are directly impacted by the timing of employee stock transactions and unpredictable fluctuations in our stock price, which we expect to have a significant impact on our future GAAP financial results.

Conference Call Information

Confluent will host a video webcast to discuss the company's second quarter 2021 results as well as the financial outlook for its third quarter and fiscal year 2021 today at 4:30 p.m. Eastern Time/1:30 p.m. Pacific Time. Open to the public, investors may access the webcast, earnings press release, supplemental financial information, and investor presentation on Confluent's investor relations website at investors.confluent.io before the commencement of the webcast. A replay of the webcast will also be accessible from Confluent's investor relations website a few hours after the conclusion of the live event.

Partial Early Lock-Up Release

As previously announced, beginning at the opening of trading on Monday, August 09, 2021, Confluent's employees (including officers), third-party contractors and consultants, directors, investors and founders are permitted, pursuant to the terms of lock-up agreements they have entered into with Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, as representatives of the underwriters for Confluent's recent initial public offering, to sell up to 25% of their vested shares (including shares issuable upon exercise of vested options and settlement of RSUs), in addition to any shares that were eligible for sale pursuant to the initial lock-up agreement release on the date of Confluent's initial public offering that have not yet been sold.

Forward-Looking Statements

This press release and the earnings call referencing this press release contain forward-looking statements including, among other things, statements regarding our GAAP and non-GAAP outlook for the third fiscal quarter and full fiscal 2021, increased adoption of our platform and growth in our remaining performance obligations and net retention rate, growth in Confluent Cloud revenue, our ability and position to capitalize on the shift to cloud and our market opportunity. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "seek," "plan," "project," "target," "looking ahead," "look to," "move into," and similar expressions are intended to identify forward-looking statements. Forward-looking statements represent our current beliefs, estimates and assumptions only as of the date of this press release and information contained in this press release should not be relied upon as representing our estimates as of any subsequent date. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) the impact of the ongoing COVID-19 pandemic on our business, as well as our customers, prospects, partners, and service providers, (ii) our ability to sustain and manage our rapid growth, (iii) our limited operating history, (iv) our ability to attract new customers and retain and sell additional features and services to our existing customers, (v) our ability to increase consumption of our offering, including by existing customers and through the acquisition of new customers, and successfully add new features and functionality to our offering, (vi) our ability to achieve or sustain profitability, (vii) the estimated addressable market opportunity for our offering, (viii) our ability to compete effectively in an increasingly competitive market, including achieving market acceptance over competitors and open source alternatives, (ix) breaches in our security measures or unauthorized access to our platform, our data, or our customers' or other users' personal data, (x) our reliance on third-party cloud-based infrastructure to host Confluent Cloud, and (xi) general market, political, economic, and business conditions. These risks are not exhaustive. Further information on these and other risks that could affect Confluent's results is included in our filings with the Securities and Exchange Commission ("SEC"), including our prospectus filed with the SEC pursuant to Rule 424(b)(4), dated June 23, 2021, and our future reports that we may file from time to time with the SEC. Additional information will be made available in our Form 10-Q for the quarter ended June 30, 2021 that will be filed with the SEC, which should be read in conjunction with this press release and the financial results included herein. Confluent assumes no obligation to, and does not currently intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Financial Measures

This press release includes the following non-GAAP financial measures: non-GAAP operating loss, non-GAAP net loss per share and free cash flow. We use these non-GAAP financial measures and other key metrics internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. We believe these non-GAAP financial measures, when taken collectively, may be helpful to investors because they provide consistency and comparability with past financial performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. However, non-GAAP financial measures have limitations as an analytical tool and are presented for supplemental informational purposes only. They should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. In particular, other companies, including companies in our industry, may report non-GAAP operating loss, non-GAAP net loss per share, free cash flow or similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures. Further, free cash flow is not a substitute for cash used in operating activities. The utility of free cash flow is limited as such measure does not reflect our future contractual commitments and does not represent the total increase or decrease in our cash balance for any given period. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, as presented below. We define non-GAAP operating loss and non-GAAP net loss per share as the respective GAAP balances, adjusted for, as applicable, stock-based compensation expense; employer taxes on employee stock transactions; common stock charitable donation expense; and income tax effects associated with these adjustments. We define free cash flow as net cash used in operating activities less capitalized internal-use software costs and capital expenditures. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors about the performance of core operations and future ability to generate cash that can be used for strategic opportunities or investing in our business.

Other Business Metrics

Remaining performance obligations ("RPO") represent the amount of contracted future revenue that has not yet been recognized as of the end of each period, including both deferred revenue that has been invoiced and non-cancelable committed amounts that will be invoiced and recognized as revenue in future periods. RPO excludes pay-as-you-go arrangements. RPO may also fluctuate due to a number of factors, including the timing of renewals, average contract terms, seasonality, and dollar amount of customer contracts. RPO as a metric is not necessarily indicative of future revenue growth because it does not account for the timing of customers' consumption or their consumption of more than their contracted capacity.

Customers with $100,000 or greater in annual recurring revenue ("ARR")represent the number of customers that contributed $100,000 or more in ARR as of period end. ARR is the subscription revenue contractually expected to be received from customers over the following 12 months assuming no increases or reductions in subscriptions. ARR excludes services and pay-as-you-go arrangements. For purposes of determining our customer count, we treat all affiliated entities with the same parent organization as a single customer and include pay-as-you-go customers. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.

About Confluent

Confluent is pioneering a fundamentally new category of data infrastructure focused on data in motion. Confluent's cloud-native offering is the foundational platform for data in motion - designed to be the intelligent connective tissue enabling real-time data, from multiple sources, to constantly stream across the organization. With Confluent, organizations can meet the new business imperative of delivering rich, digital front-end customer experiences and transitioning to sophisticated, real-time, software-driven backend operations.

Confluent, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

June 30, 2021 December 31, 2020

ASSETSCurrent assets:Cash and cash equivalents $ 860,347 $ 36,789

Marketable securities 183,526 251,756

Accounts receivable, net of allowance 117,176 105,971

Deferred contract acquisition costs 20,516 14,403

Prepaid expenses and other current assets 32,040 18,775

Total current assets 1,213,605 427,694

Property and equipment, net 9,060 6,718

Operating lease right-of-use assets 43,482 48,273

Deferred contract acquisition costs, non-current 41,848 33,196

Other assets, non-current 9,983 10,238

Total assets $ 1,317,978 $ 526,119

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY(DEFICIT)Current liabilities:Accounts payable $ 1,834 $ 1,646

Accrued expenses and other liabilities 49,970 33,711

Operating lease liabilities 10,288 10,492

Deferred revenue 172,671 142,901

Liability for early exercise of unvested stock 14,217 5,049 optionsTotal current liabilities 248,980 193,799

Operating lease liabilities, non-current 35,912 40,440

Deferred revenue, non-current 17,873 16,292

Other liabilities, non-current 11,668 7,203

Total liabilities 314,433 257,734

Redeemable convertible preferred stock - 574,634

Stockholders' equity (deficit):Preferred stock - -

Common stock - 1

Convertible founder stock - -

Class A common stock - -

Class B common stock 2 -

Additional paid-in capital 1,542,338 99,575

Accumulated other comprehensive (loss) income (46 ) 228

Accumulated deficit (538,749 ) (406,053 )

Total stockholders' equity (deficit) 1,003,545 (306,249 )

Total liabilities, redeemable convertible $ 1,317,978 $ 526,119 preferred stock, and stockholders' equity(deficit)Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended June 30,Six Months Ended June 30,2021

2020

2021

2020

Revenue:Subscription$

78,516

$

46,973

$

146,508

$

90,916

Services9,822

6,879

18,858

13,840

Total revenue88,338

53,852

165,366

104,756

Cost of revenue:Subscription(1)(2)20,292

11,734

36,049

22,748

Services(1)(2)9,717

5,956

17,798

12,755

Total cost of revenue30,009

17,690

53,847

35,503

Gross profit58,329

36,162

111,519

69,253

Operating expenses:Research and development(1)(2)33,225

18,875

57,538

38,617

Sales and marketing(1)(2)73,206

36,447

131,715

74,764

General and administrative(1)(2)37,943

8,334

53,455

16,749

Total operating expenses144,374

63,656

242,708

130,130

Operating loss(86,045

)

(27,494

)

(131,189

)

(60,877

)

Interest income688

1,303

1,532

1,746

Other expense, net(643

)

(211

)

(979

)

(518

)

Loss before income taxes(86,000

)

(26,402

)

(130,636

)

(59,649

)

Provision for (benefit from) income taxes2,170

(106

)

2,060

282

Net loss$

(88,170

)

$

(26,296

)

$

(132,696

)

$

(59,931

)

Net loss per share attributable to common stockholders, basic and diluted$

(0.74

)

$

(0.25

)

$

(1.17

)

$

(0.56

)

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted118,648,655

105,532,865

113,717,546

106,964,953

Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020

Revenue:Subscription $ 78,516 $ 46,973 $ 146,508 $ 90,916

Services 9,822 6,879 18,858 13,840

Total revenue 88,338 53,852 165,366 104,756

Cost of revenue:Subscription^(1) 20,292 11,734 36,049 22,748 (2)Services^(1)(2) 9,717 5,956 17,798 12,755

Total cost of 30,009 17,690 53,847 35,503 revenueGross profit 58,329 36,162 111,519 69,253

Operatingexpenses:Research and 33,225 18,875 57,538 38,617 development^(1)(2)Sales and 73,206 36,447 131,715 74,764 marketing^(1)(2)General and 37,943 8,334 53,455 16,749 administrative^(1)(2)Total operating 144,374 63,656 242,708 130,130 expensesOperating loss (86,045 ) (27,494 ) (131,189 ) (60,877 )

Interest income 688 1,303 1,532 1,746

Other expense, (643 ) (211 ) (979 ) (518 )netLoss before (86,000 ) (26,402 ) (130,636 ) (59,649 )income taxesProvision for 2,170 (106 ) 2,060 282 (benefit from)income taxesNet loss $ (88,170 ) $ (26,296 ) $ (132,696 ) $ (59,931 )

Net loss pershareattributable to $ (0.74 ) $ (0.25 ) $ (1.17 ) $ (0.56 )commonstockholders,basic anddilutedWeighted-averageshares used tocompute net lossper share 118,648,655 105,532,865 113,717,546 106,964,953 attributable tocommonstockholders,basic anddiluted(1) Includes stock-based compensation expense as follows:Three Months Ended June 30,Six Months Ended June 30,2021

2020

2021

2020

Cost of revenue - subscription$

2,172

$

524

$

3,147

$

986

Cost of revenue - services1,055

312

1,599

662

Research and development8,932

2,250

12,443

4,296

Sales and marketing11,155

2,735

16,131

5,108

General and administrative11,202

1,251

14,549

2,471

Total stock-based compensation expense$

34,516

$

7,072

$

47,869

$

13,523

^(1) Includes stock-based compensation expense as follows: Three Months Ended Six Months Ended June June 30, 30, 2021 2020 2021 2020

Cost of revenue - subscription $ 2,172 $ 524 $ 3,147 $ 986

Cost of revenue - services 1,055 312 1,599 662

Research and development 8,932 2,250 12,443 4,296

Sales and marketing 11,155 2,735 16,131 5,108

General and administrative 11,202 1,251 14,549 2,471

Total stock-based compensation $ 34,516 $ 7,072 $ 47,869 $ 13,523 expense(2) Includes employer taxes on employee stock transactions as follows:Three Months Ended June 30,Six Months Ended June 30,2021

2020

2021

2020

Cost of revenue - subscription$

38

$

-

$

38

$

1

Cost of revenue - services288

-

288

-

Research and development277

-

398

9

Sales and marketing610

-

713

22

General and administrative222

5

261

49

Total employer taxes on employee stock transactions$

1,435

$

5

$

1,698

$

81

^(2) Includes employer taxes on employee stock transactions as follows: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020

Cost of revenue - subscription $ 38 $ - $ 38 $ 1

Cost of revenue - services 288 - 288 -

Research and development 277 - 398 9

Sales and marketing 610 - 713 22

General and administrative 222 5 261 49

Total employer taxes on employee $ 1,435 $ 5 $ 1,698 $ 81 stock transactionsConfluent, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended June 30,Six Months Ended June 30,2021

2020

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIESNet loss$

(88,170

)

$

(26,296

)

$

(132,696

)

$

(59,931

)

Adjustments to reconcile net loss to cash used in operating activities:Depreciation and amortization756

434

1,543

699

Net amortization of premiums or discounts on marketable securities459

365

964

342

Amortization of deferred contract acquisition costs6,048

3,254

11,583

6,128

Non-cash operating lease costs2,748

2,996

5,604

6,102

Common stock charitable donation expense13,290

-

13,290

-

Stock-based compensation, net of amounts capitalized34,516

7,072

47,869

13,523

Deferred income taxes2,297

(134

)

1,730

(132

)

Other209

67

648

269

Changes in operating assets and liabilities:Accounts receivable(17,587

)

(16,259

)

(11,853

)

(25,337

)

Deferred contract acquisition costs(15,482

)

(8,419

)

(26,348

)

(13,927

)

Prepaid expenses and other assets(12,368

)

(917

)

(14,723

)

(148

)

Accounts payable(468

)

63

371

(1,635

)

Accrued expenses and other liabilities11,460

5,541

12,893

2,284

Operating lease liabilities(2,661

)

(2,823

)

(5,382

)

(5,767

)

Deferred revenue21,787

13,600

31,352

25,043

Net cash used in operating activities(43,166

)

(21,456

)

(63,155

)

(52,487

)

CASH FLOWS FROM INVESTING ACTIVITIESCapitalization of internal-use software costs(1,215

)

(1,105

)

(1,811

)

(2,097

)

Purchases of marketable securities(14,283

)

(191,977

)

(55,971

)

(230,690

)

Sales of marketable securities-

-

-

4,988

Maturities of marketable securities66,211

16,743

122,974

36,760

Purchases of property and equipment(1,030

)

(138

)

(1,673

)

(484

)

Other-

-

9

-

Net cash provided by (used in) investing activities49,683

(176,477

)

63,528

(191,523

)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from initial public offering, net of underwriting discounts and commissions786,600

-

786,600

-

Proceeds from issuance of common stock upon exercise of vested options12,490

931

18,705

2,587

Proceeds from issuance of common stock upon early exercise of unvested options, net of repurchases11,145

469

18,543

838

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs-

24,865

-

249,865

Payments of deferred offering costs(767

)

-

(920

)

-

Net cash provided by financing activities809,468

26,265

822,928

253,290

Effect of exchange rate changes on cash, cash equivalents, and restricted cash(2

)

14

(10

)

(33

)

Net increase (decrease) in cash, cash equivalents, and restricted cash815,983

(171,654

)

823,291

9,247

Cash, cash equivalents, and restricted cash at beginning of period45,114

200,872

37,806

19,971

Cash, cash equivalents, and restricted cash at end of period$

861,097

$

29,218

$

861,097

$

29,218

Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the amounts shown above:Cash and cash equivalents

$

860,347

$

28,201

$

860,347

$

28,201

Restricted cash included in other assets, non-current

750

1,017

750

1,017

Total cash, cash equivalents, and restricted cash$

861,097

$

29,218

$

861,097

$

29,218

Confluent, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended June Six Months Ended June 30, 30, 2021 2020 2021 2020

CASH FLOWS FROMOPERATING ACTIVITIESNet loss $ (88,170 ) $ (26,296 ) $ (132,696 ) $ (59,931 )

Adjustments to reconcilenet loss to cash used inoperating activities:Depreciation and 756 434 1,543 699 amortizationNet amortization of 459 365 964 342 premiums or discounts onmarketable securitiesAmortization of deferred 6,048 3,254 11,583 6,128 contract acquisitioncostsNon-cash operating lease 2,748 2,996 5,604 6,102 costsCommon stock charitable 13,290 - 13,290 - donation expenseStock-based 34,516 7,072 47,869 13,523 compensation, net ofamounts capitalizedDeferred income taxes 2,297 (134 ) 1,730 (132 )

Other 209 67 648 269

Changes in operatingassets and liabilities:Accounts receivable (17,587 ) (16,259 ) (11,853 ) (25,337 )

Deferred contract (15,482 ) (8,419 ) (26,348 ) (13,927 )acquisition costsPrepaid expenses and (12,368 ) (917 ) (14,723 ) (148 )other assetsAccounts payable (468 ) 63 371 (1,635 )

Accrued expenses and 11,460 5,541 12,893 2,284 other liabilitiesOperating lease (2,661 ) (2,823 ) (5,382 ) (5,767 )liabilitiesDeferred revenue 21,787 13,600 31,352 25,043

Net cash used in (43,166 ) (21,456 ) (63,155 ) (52,487 )operating activitiesCASH FLOWS FROMINVESTING ACTIVITIESCapitalization of (1,215 ) (1,105 ) (1,811 ) (2,097 )internal-use softwarecostsPurchases of marketable (14,283 ) (191,977 ) (55,971 ) (230,690 )securitiesSales of marketable - - - 4,988 securitiesMaturities of marketable 66,211 16,743 122,974 36,760 securitiesPurchases of property (1,030 ) (138 ) (1,673 ) (484 )and equipmentOther - - 9 -

Net cash provided by 49,683 (176,477 ) 63,528 (191,523 )(used in) investingactivitiesCASH FLOWS FROMFINANCING ACTIVITIESProceeds from initialpublic offering, net of 786,600 - 786,600 - underwriting discountsand commissionsProceeds from issuanceof common stock upon 12,490 931 18,705 2,587 exercise of vestedoptionsProceeds from issuanceof common stock upon 11,145 469 18,543 838 early exercise ofunvested options, net ofrepurchasesProceeds from issuanceof redeemable - 24,865 - 249,865 convertible preferredstock, net of issuancecostsPayments of deferred (767 ) - (920 ) - offering costsNet cash provided by 809,468 26,265 822,928 253,290 financing activitiesEffect of exchange ratechanges on cash, cash (2 ) 14 (10 ) (33 )equivalents, andrestricted cashNet increase (decrease)in cash, cash 815,983 (171,654 ) 823,291 9,247 equivalents, andrestricted cashCash, cash equivalents, 45,114 200,872 37,806 19,971 and restricted cash atbeginning of periodCash, cash equivalents, $ 861,097 $ 29,218 $ 861,097 $ 29,218 and restricted cash atend of periodReconciliation of cash, cash equivalents, and restricted cash within theconsolidated balance sheets to the amounts shown above:Cash and cash $ 860,347 $ 28,201 $ 860,347 $ 28,201 equivalents

Restricted cash includedin other assets, 750 1,017 750 1,017 non-current

Total cash, cash $ 861,097 $ 29,218 $ 861,097 $ 29,218 equivalents, andrestricted cashConfluent, Inc.

Reconciliation of GAAP Measures to Non-GAAP Measures

(in thousands, except percentages, share and per share data)

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Reconciliation of GAAP total gross profit to non-GAAP total gross profit:Total gross profit on a GAAP basis$

58,329

$

36,162

$

111,519

$

69,253

Total gross margin on a GAAP basis66.0

%

67.2

%

67.4

%

66.1

%

Add: Stock-based compensation expense3,227

836

4,746

1,648

Add: Employer taxes on employee stock transactions326

-

326

1

Non-GAAP total gross profit$

61,882

$

36,998

$

116,591

$

70,902

Non-GAAP total gross margin70.1

%

68.7

%

70.5

%

67.7

%

Reconciliation of GAAP operating expenses to non-GAAP operating expenses:Research and development operating expense on a GAAP basis$

33,225

$

18,875

$

57,538

$

38,617

Less: Stock-based compensation expense8,932

2,250

12,443

4,296

Less: Employer taxes on employee stock transactions277

-

398

9

Non-GAAP research and development operating expense$

24,016

$

16,625

$

44,697

$

34,312

Non-GAAP research and development operating expense as a percentage of total revenue27.2

%

30.9

%

27.0

%

32.8

%

Sales and marketing operating expense on a GAAP basis$

73,206

$

36,447

$

131,715

$

74,764

Less: Stock-based compensation expense11,155

2,735

16,131

5,108

Less: Employer taxes on employee stock transactions610

-

713

22

Non-GAAP sales and marketing operating expense$

61,441

$

33,712

$

114,871

$

69,634

Non-GAAP sales and marketing operating expense as a percentage of total revenue69.6

%

62.6

%

69.5

%

66.5

%

General and administrative operating expense on a GAAP basis$

37,943

$

8,334

$

53,455

$

16,749

Less: Stock-based compensation expense11,202

1,251

14,549

2,471

Less: Employer taxes on employee stock transactions222

5

261

49

Less: Common stock charitable donation expense13,290

-

13,290

-

Non-GAAP general and administrative operating expense$

13,229

$

7,078

$

25,355

$

14,229

Non-GAAP general and administrative operating expense as a percentage of total revenue15.0

%

13.1

%

15.3

%

13.6

%

Three Months Ended June 30,Six Months Ended June 30,2021

2020

2021

2020

Reconciliation of GAAP operating loss to non-GAAP operating loss:Operating loss on a GAAP basis$

(86,045

)

$

(27,494

)

$

(131,189

)

$

(60,877

)

Add: Stock-based compensation expense34,516

7,072

47,869

13,523

Add: Employer taxes on employee stock transactions1,435

5

1,698

81

Add: Common stock charitable donation expense13,290

-

13,290

-

Non-GAAP operating loss$

(36,804

)

$

(20,417

)

$

(68,332

)

$

(47,273

)

Non-GAAP operating margin(41.7

%)

(37.9

%)

(41.3

%)

(45.1

%)

Reconciliation of GAAP net loss to non-GAAP net loss:Net loss on a GAAP basis$

(88,170

)

$

(26,296

)

$

(132,696

)

$

(59,931

)

Add: Stock-based compensation expense34,516

7,072

47,869

13,523

Add: Employer taxes on employee stock transactions1,435

5

1,698

81

Add: Common stock charitable donation expense13,290

-

13,290

-

Add: Income tax effects and adjustments1,716

(438

)

1,045

(427

)

Non-GAAP net loss$

(37,213

)

$

(19,657

)

$

(68,794

)

$

(46,754

)

Non-GAAP net loss per share attributable to common stockholders, basic and diluted$

(0.31

)

$

(0.19

)

$

(0.17

)

$

(0.18

)

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted118,648,655

105,532,865

113,717,546

106,964,953

The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP measure, for each of the periods indicated (unaudited, in thousands):

Confluent, Inc.

Reconciliation of GAAP Measures to Non-GAAP Measures

(in thousands, except percentages, share and per share data)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Reconciliation of GAAP total gross profit to non-GAAP total gross profit:Total gross $ 58,329 $ 36,162 $ 111,519 $ 69,253 profit on a GAAPbasisTotal gross 66.0 % 67.2 % 67.4 % 66.1 %margin on a GAAPbasisAdd: Stock-based 3,227 836 4,746 1,648 compensationexpenseAdd: Employertaxes on 326 - 326 1 employee stocktransactionsNon-GAAP total $ 61,882 $ 36,998 $ 116,591 $ 70,902 gross profitNon-GAAP total 70.1 % 68.7 % 70.5 % 67.7 %gross margin Reconciliation of GAAP operating expenses to non-GAAP operating expenses:Research anddevelopment $ 33,225 $ 18,875 $ 57,538 $ 38,617 operatingexpense on aGAAP basisLess:Stock-based 8,932 2,250 12,443 4,296 compensationexpenseLess: Employertaxes on 277 - 398 9 employee stocktransactionsNon-GAAPresearch and $ 24,016 $ 16,625 $ 44,697 $ 34,312 developmentoperatingexpenseNon-GAAPresearch anddevelopment 27.2 % 30.9 % 27.0 % 32.8 %operatingexpense as apercentage oftotal revenue Sales andmarketing $ 73,206 $ 36,447 $ 131,715 $ 74,764 operatingexpense on aGAAP basisLess:Stock-based 11,155 2,735 16,131 5,108 compensationexpenseLess: Employertaxes on 610 - 713 22 employee stocktransactionsNon-GAAP salesand marketing $ 61,441 $ 33,712 $ 114,871 $ 69,634 operatingexpenseNon-GAAP salesand marketingoperating 69.6 % 62.6 % 69.5 % 66.5 %expense as apercentage oftotal revenue General andadministrative $ 37,943 $ 8,334 $ 53,455 $ 16,749 operatingexpense on aGAAP basisLess:Stock-based 11,202 1,251 14,549 2,471 compensationexpenseLess: Employertaxes on 222 5 261 49 employee stocktransactionsLess: Common 13,290 - 13,290 - stock charitabledonation expenseNon-GAAP generaland $ 13,229 $ 7,078 $ 25,355 $ 14,229 administrativeoperatingexpenseNon-GAAP generalandadministrative 15.0 % 13.1 % 15.3 % 13.6 %operatingexpense as apercentage oftotal revenue Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020

Reconciliation of GAAP operating loss to non-GAAP operating loss:Operating loss $ (86,045 ) $ (27,494 ) $ (131,189 ) $ (60,877 )on a GAAP basisAdd: Stock-based 34,516 7,072 47,869 13,523 compensationexpenseAdd: Employertaxes on 1,435 5 1,698 81 employee stocktransactionsAdd: Common 13,290 - 13,290 - stock charitabledonation expenseNon-GAAP $ (36,804 ) $ (20,417 ) $ (68,332 ) $ (47,273 )operating lossNon-GAAP (41.7 %) (37.9 %) (41.3 %) (45.1 %)operating margin Reconciliation of GAAP net loss to non-GAAP net loss:Net loss on a $ (88,170 ) $ (26,296 ) $ (132,696 ) $ (59,931 )GAAP basisAdd: Stock-based 34,516 7,072 47,869 13,523 compensationexpenseAdd: Employertaxes on 1,435 5 1,698 81 employee stocktransactionsAdd: Common 13,290 - 13,290 - stock charitabledonation expenseAdd: Income tax 1,716 (438 ) 1,045 (427 )effects andadjustmentsNon-GAAP net $ (37,213 ) $ (19,657 ) $ (68,794 ) $ (46,754 )lossNon-GAAP netloss per shareattributable to $ (0.31 ) $ (0.19 ) $ (0.17 ) $ (0.18 )commonstockholders,basic anddilutedWeighted-averageshares used tocompute net lossper share 118,648,655 105,532,865 113,717,546 106,964,953 attributable tocommonstockholders,basic anddiluted The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP measure, for each of the periods indicated (unaudited, in thousands):

Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020

Net cash used in $ (43,166 ) $ (21,456 ) $ (63,155 ) $ (52,487 )operating activitiesCapitalized (1,215 ) (1,105 ) (1,811 ) (2,097 )internal-use softwarecostsCapital expenditures (1,030 ) (138 ) (1,673 ) (484 )

Free cash flow $ (45,411 ) $ (22,699 ) $ (66,639 ) $ (55,068 )

Free cash flow margin (51.4 %) (42.2 %) (40.3 %) (52.6 %)

Net cash provided by $ 49,683 $ (176,477 ) $ 63,528 $ (191,523 )(used in) investingactivitiesNet cash provided by $ 809,468 $ 26,265 $ 822,928 $ 253,290 financing activities View source version on businesswire.com: https://www.businesswire.com/news/home/20210805005963/en/

CONTACT: Investor Contact Shane Xie investors@confluent.io

CONTACT: Media Contact Taylor Jones pr@confluent.io