Business Wire | Nov 4, 2021 04:03PM EDT

Confluent Announces Third Quarter 2021 Financial Results

Nov. 04, 2021

MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Nov. 04, 2021--Confluent, Inc. (NASDAQ: CFLT), the platform for data in motion, today announced financial results for its third quarter 2021, ended September 30, 2021.

"Harnessing the power of data in motion is a major factor in determining which organizations win in the modern era," said Jay Kreps, co-founder and CEO, Confluent. "This imperative - combined with the massive cross-industry migration to the public cloud - has driven an acceleration to 245% year-over-year growth for Confluent Cloud as organizations look for a platform that connects and processes all of their data, everywhere it is."

"We delivered our first quarter with more than one hundred million dollars in total revenue, a milestone for our business, and saw continued year-over-year growth acceleration in total revenue, Confluent Cloud revenue, and remaining performance obligations," said Steffan Tomlinson, CFO, Confluent. "Our strong dollar-based net retention rate, which once again exceeded 130% in the third quarter, is a testament to the power of our data-in-motion platform and the strength of our go-to-market model."

Third Quarter 2021 Financial Highlights(In millions, except per share data and percentages)

Q3 2021 Q3 2020 Y/Y Change

Total Revenue $102.6 $61.5 67%

Remaining Performance Obligations $385.0 $220.2 75%

GAAP Operating Loss^(1) $(94.8) $(140.0) $45.2

Non-GAAP Operating Loss $(42.6) $(19.7) $(22.9)

GAAP Net Loss Per Share^(1) $(0.37) $(1.34) $0.97

Non-GAAP Net Loss Per Share $(0.17) $(0.18) $0.01

Net Cash Used in Operating Activities $(18.0) $(9.2) $(8.8)

Free Cash Flow $(20.6) $(10.3) $(10.3)

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."

^(1) Includes the one-time impact of $111.9 million of stock-based compensationexpense in connection with a tender offer and secondary sales of our commonstock and convertible founder stock in Q3 2020.

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

Q4 2021 Outlook Fiscal 2021 Outlook

Total Revenue $108-$110 million $376-$378 million

Non-GAAP Operating Loss $(59)-$(57) million $(170)-$(168) million

Non-GAAP Net Loss Per Share $(0.23)-$(0.21) $(0.92)-$(0.90)

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 third quarter 2021 results as well as its financial outlook 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.

IPO Lock-up Termination

As previously announced, beginning at the opening of trading on Monday, November 08, 2021, the lock-up agreements that Confluent's directors, officers, and holders of substantially all of Confluent's pre-IPO common stock and securities exercisable for or convertible into common stock, 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, will terminate.

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 financial outlook; increased adoption of our platform; growth in total revenue, Confluent Cloud revenue, remaining performance obligations and dollar-based net retention rate; 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) our ability to attract and retain highly qualified personnel, (x) breaches in our security measures or unauthorized access to our platform, our data, or our customers' or other users' personal data, (xi) our reliance on third-party cloud-based infrastructure to host Confluent Cloud, and (xii) 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and our future reports that we may file from time to time with the SEC. Additional information will be made available in our Quarterly Report on Form 10-Q for the quarter ended September 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.

Dollar-based net retention rate ("NRR") as of a period end is calculated by starting with the ARR from the cohort of all customers as of 12 months prior to such period end ("Prior Period Value"). We calculate the ARR from these same customers as of the current period end ("Current Period Value"), which includes any growth in the value of subscriptions and is net of contraction or attrition over the prior 12 months. Services and pay-as-you-go arrangements are excluded from the calculation of ARR. We then divide the Current Period Value by the Prior Period Value to arrive at our dollar-based NRR. The dollar-based NRR includes the effect, on a dollar-weighted value basis, of our subscriptions that expand, renew, contract, or attrit, 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.

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)



September 30, December 31, 2021 2020

ASSETSCurrent assets:Cash and cash equivalents $ 582,697 $ 36,789

Marketable securities 448,245 251,756

Accounts receivable, net of allowance 116,006 105,971

Deferred contract acquisition costs 23,120 14,403

Prepaid expenses and other current assets 37,481 18,775

Total current assets 1,207,549 427,694

Property and equipment, net 11,892 6,718

Operating lease right-of-use assets 39,705 48,273

Deferred contract acquisition costs, non-current 43,748 33,196

Other assets, non-current 6,926 10,238

Total assets $ 1,309,820 $ 526,119

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY(DEFICIT)Current liabilities:Accounts payable $ 3,327 $ 1,646

Accrued expenses and other liabilities 66,721 33,711

Operating lease liabilities 9,819 10,492

Deferred revenue 179,696 142,901

Liability for early exercise of unvested stock 13,238 5,049 optionsTotal current liabilities 272,801 193,799

Operating lease liabilities, non-current 33,720 40,440

Deferred revenue, non-current 22,398 16,292

Other liabilities, non-current 9,760 7,203

Total liabilities 338,679 257,734

Redeemable convertible preferred stock - 574,634

Stockholders' equity (deficit):Preferred stock - -

Common stock - 1

Convertible founder stock - -

Class A common stock 1 -

Class B common stock 2 -

Additional paid-in capital 1,605,341 99,575

Accumulated other comprehensive income 212 228

Accumulated deficit (634,415 ) (406,053 )

Total stockholders' equity (deficit) 971,141 (306,249 )

Total liabilities, redeemable convertible $ 1,309,820 $ 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 September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Revenue:Subscription$

92,400

$

54,498

$

238,908

$

145,414

Services10,170

6,999

29,028

20,839

Total revenue102,570

61,497

267,936

166,253

Cost of revenue:Subscription(1)(2)25,489

12,373

61,538

35,121

Services(1)(2)11,810

6,683

29,608

19,438

Total cost of revenue37,299

19,056

91,146

54,559

Gross profit65,271

42,441

176,790

111,694

Operating expenses:Research and development(1)(2)47,701

44,921

105,239

83,538

Sales and marketing(1)(2)86,991

43,759

218,706

118,523

General and administrative(1)(2)25,330

93,758

78,785

110,507

Total operating expenses160,022

182,438

402,730

312,568

Operating loss(94,751

)

(139,997

)

(225,940

)

(200,874

)

Interest income299

1,259

1,831

3,005

Other expense, net(530

)

(153

)

(1,509

)

(671

)

Loss before income taxes(94,982

)

(138,891

)

(225,618

)

(198,540

)

Provision for (benefit from) income taxes684

(750

)

2,744

(468

)

Net loss$

(95,666

)

$

(138,141

)

$

(228,362

)

$

(198,072

)

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

(0.37

)

$

(1.34

)

$

(1.40

)

$

(1.91

)

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted259,152,303

102,852,461

162,728,527

103,856,815

Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)



Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Revenue:Subscription $ 92,400 $ 54,498 $ 238,908 $ 145,414

Services 10,170 6,999 29,028 20,839

Total revenue 102,570 61,497 267,936 166,253

Cost of revenue:Subscription^(1) 25,489 12,373 61,538 35,121 (2)Services^(1)(2) 11,810 6,683 29,608 19,438

Total cost of 37,299 19,056 91,146 54,559 revenueGross profit 65,271 42,441 176,790 111,694

Operatingexpenses:Research and 47,701 44,921 105,239 83,538 development^(1)(2)Sales and 86,991 43,759 218,706 118,523 marketing^(1)(2)General and 25,330 93,758 78,785 110,507 administrative^(1)(2)Total operating 160,022 182,438 402,730 312,568 expensesOperating loss (94,751 ) (139,997 ) (225,940 ) (200,874 )

Interest income 299 1,259 1,831 3,005

Other expense, (530 ) (153 ) (1,509 ) (671 )netLoss before (94,982 ) (138,891 ) (225,618 ) (198,540 )income taxesProvision for 684 (750 ) 2,744 (468 )(benefit from)income taxesNet loss $ (95,666 ) $ (138,141 ) $ (228,362 ) $ (198,072 )

Net loss pershareattributable to $ (0.37 ) $ (1.34 ) $ (1.40 ) $ (1.91 )commonstockholders,basic anddilutedWeighted-averageshares used tocompute net lossper share 259,152,303 102,852,461 162,728,527 103,856,815 attributable tocommonstockholders,basic anddiluted(1) Includes stock-based compensation expense as follows:Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Cost of revenue - subscription$

3,945

$

883

$

7,092

$

1,869

Cost of revenue - services1,790

671

3,389

1,333

Research and development16,310

26,522

28,753

30,818

Sales and marketing18,516

6,379

34,647

11,487

General and administrative9,122

85,619

23,671

88,090

Total stock-based compensation expense$

49,683

$

120,074

*

$

97,552

$

133,597

*

* In connection with a tender offer and secondary sales of our common stock and convertible founder stock, stock-based compensation for the three and nine months ended September 30, 2020 included $111.9 million of expense related to the amount paid in excess of the estimated fair value of common stock as of the date of the transactions.^(1) Includes stock-based compensation expense as follows: Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Cost of revenue - $ 3,945 $ 883 $ 7,092 $ 1,869subscriptionCost of revenue - services 1,790 671 3,389 1,333

Research and development 16,310 26,522 28,753 30,818

Sales and marketing 18,516 6,379 34,647 11,487

General and administrative 9,122 85,619 23,671 88,090

Total stock-based $ 49,683 $ 120,074 * $ 97,552 $ 133,597 *compensation expense * In connection with a tender offer and secondary sales of our common stock andconvertible founder stock, stock-based compensation for the three and ninemonths ended September 30, 2020 included $111.9 million of expense related tothe amount paid in excess of the estimated fair value of common stock as of thedate of the transactions.(2) Includes employer taxes on employee stock transactions as follows:Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Cost of revenue - subscription$

117

$

8

$

155

$

9

Cost of revenue - services49

16

337

16

Research and development601

45

999

54

Sales and marketing1,236

35

1,949

57

General and administrative436

92

697

141

Total employer taxes on employee stock transactions$

2,439

$

196

$

4,137

$

277

^(2) Includes employer taxes on employee stock transactions as follows: Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Cost of revenue - subscription $ 117 $ 8 $ 155 $ 9

Cost of revenue - services 49 16 337 16

Research and development 601 45 999 54

Sales and marketing 1,236 35 1,949 57

General and administrative 436 92 697 141

Total employer taxes on employee $ 2,439 $ 196 $ 4,137 $ 277stock transactionsConfluent, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIESNet loss$

(95,666

)

$

(138,141

)

$

(228,362

)

$

(198,072

)

Adjustments to reconcile net loss to cash used in operating activities:Depreciation and amortization897

488

2,440

1,187

Net amortization of premiums or discounts on marketable securities536

436

1,500

778

Amortization of deferred contract acquisition costs6,739

4,125

18,322

10,253

Non-cash operating lease costs2,962

2,943

8,566

9,045

Common stock charitable donation expense-

-

13,290

-

Stock-based compensation, net of amounts capitalized49,683

120,074

97,552

133,597

Deferred income taxes(1

)

(906

)

1,729

(1,038

)

Other1,023

110

1,671

379

Changes in operating assets and liabilities:Accounts receivable979

1,738

(10,874

)

(23,599

)

Deferred contract acquisition costs(11,244

)

(9,548

)

(37,592

)

(23,475

)

Prepaid expenses and other assets(2,616

)

(3,829

)

(17,339

)

(3,977

)

Accounts payable1,366

1,530

1,737

(105

)

Accrued expenses and other liabilities18,597

5,915

31,490

8,199

Operating lease liabilities(2,834

)

(2,726

)

(8,216

)

(8,493

)

Deferred revenue11,550

8,616

42,902

33,659

Net cash used in operating activities(18,029

)

(9,175

)

(81,184

)

(61,662

)

CASH FLOWS FROM INVESTING ACTIVITIESCapitalization of internal-use software costs(2,052

)

(870

)

(3,863

)

(2,967

)

Purchases of marketable securities(322,941

)

(52,730

)

(378,912

)

(283,420

)

Sales of marketable securities-

-

-

4,988

Maturities of marketable securities57,693

70,226

180,667

106,986

Purchases of property and equipment(563

)

(209

)

(2,236

)

(693

)

Other3

-

12

-

Net cash (used in) provided by investing activities(267,860

)

16,417

(204,332

)

(175,106

)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from initial public offering, net of underwriting discounts and commissions-

-

786,600

-

Proceeds from issuance of common stock upon exercise of vested options10,421

4,413

29,126

7,000

Proceeds from issuance of common stock upon early exercise of unvested options, net of repurchases24

2,493

18,567

3,331

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

10,000

-

259,865

Payments of deferred offering costs(2,205

)

-

(3,125

)

-

Net cash provided by financing activities8,240

16,906

831,168

270,196

Effect of exchange rate changes on cash, cash equivalents, and restricted cash(1

)

51

(11

)

18

Net (decrease) increase in cash, cash equivalents, and restricted cash(277,650

)

24,199

545,641

33,446

Cash, cash equivalents, and restricted cash at beginning of period861,097

29,218

37,806

19,971

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

583,447

$

53,417

$

583,447

$

53,417

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

582,697

$

52,400

$

582,697

$

52,400

Restricted cash included in other assets, non-current750

1,017

750

1,017

Total cash, cash equivalents, and restricted cash$

583,447

$

53,417

$

583,447

$

53,417

Confluent, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



Three Months Ended Nine Months Ended September September 30, 30,

2021 2020 2021 2020

CASH FLOWS FROMOPERATING ACTIVITIESNet loss $ (95,666 ) $ (138,141 ) $ (228,362 ) $ (198,072 )

Adjustments toreconcile net loss tocash used inoperating activities:Depreciation and 897 488 2,440 1,187 amortizationNet amortization ofpremiums or discounts 536 436 1,500 778 on marketablesecuritiesAmortization of 6,739 4,125 18,322 10,253 deferred contractacquisition costsNon-cash operating 2,962 2,943 8,566 9,045 lease costsCommon stock - - 13,290 - charitable donationexpenseStock-based 49,683 120,074 97,552 133,597 compensation, net ofamounts capitalizedDeferred income taxes (1 ) (906 ) 1,729 (1,038 )

Other 1,023 110 1,671 379

Changes in operatingassets andliabilities:Accounts receivable 979 1,738 (10,874 ) (23,599 )

Deferred contract (11,244 ) (9,548 ) (37,592 ) (23,475 )acquisition costsPrepaid expenses and (2,616 ) (3,829 ) (17,339 ) (3,977 )other assetsAccounts payable 1,366 1,530 1,737 (105 )

Accrued expenses and 18,597 5,915 31,490 8,199 other liabilitiesOperating lease (2,834 ) (2,726 ) (8,216 ) (8,493 )liabilitiesDeferred revenue 11,550 8,616 42,902 33,659

Net cash used in (18,029 ) (9,175 ) (81,184 ) (61,662 )operating activitiesCASH FLOWS FROMINVESTING ACTIVITIESCapitalization of (2,052 ) (870 ) (3,863 ) (2,967 )internal-use softwarecostsPurchases of (322,941 ) (52,730 ) (378,912 ) (283,420 )marketable securitiesSales of marketable - - - 4,988 securitiesMaturities of 57,693 70,226 180,667 106,986 marketable securitiesPurchases of property (563 ) (209 ) (2,236 ) (693 )and equipmentOther 3 - 12 -

Net cash (used in) (267,860 ) 16,417 (204,332 ) (175,106 )provided by investingactivitiesCASH FLOWS FROMFINANCING ACTIVITIESProceeds from initialpublic offering, net - - 786,600 - of underwritingdiscounts andcommissionsProceeds fromissuance of common 10,421 4,413 29,126 7,000 stock upon exerciseof vested optionsProceeds fromissuance of commonstock upon early 24 2,493 18,567 3,331 exercise of unvestedoptions, net ofrepurchasesProceeds fromissuance ofredeemable - 10,000 - 259,865 convertible preferredstock, net ofissuance costsPayments of deferred (2,205 ) - (3,125 ) - offering costsNet cash provided by 8,240 16,906 831,168 270,196 financing activitiesEffect of exchangerate changes on cash, (1 ) 51 (11 ) 18 cash equivalents, andrestricted cashNet (decrease)increase in cash, (277,650 ) 24,199 545,641 33,446 cash equivalents, andrestricted cashCash, cashequivalents, and 861,097 29,218 37,806 19,971 restricted cash atbeginning of periodCash, cashequivalents, and $ 583,447 $ 53,417 $ 583,447 $ 53,417 restricted cash atend of periodReconciliation of cash, cash equivalents, and restricted cash within theconsolidated balance sheets to the amounts shown above:Cash and cash $ 582,697 $ 52,400 $ 582,697 $ 52,400 equivalentsRestricted cash 750 1,017 750 1,017 included in otherassets, non-currentTotal cash, cash $ 583,447 $ 53,417 $ 583,447 $ 53,417 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 September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

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

65,271

$

42,441

$

176,790

$

111,694

Total gross margin on a GAAP basis63.6

%

69.0

%

66.0

%

67.2

%

Add: Stock-based compensation expense(1)5,735

1,554

10,481

3,202

Add: Employer taxes on employee stock transactions166

24

492

25

Non-GAAP total gross profit$

71,172

$

44,019

$

187,763

$

114,921

Non-GAAP total gross margin69.4

%

71.6

%

70.1

%

69.1

%

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

47,701

$

44,921

$

105,239

$

83,538

Less: Stock-based compensation expense(1)16,310

26,522

28,753

30,818

Less: Employer taxes on employee stock transactions601

45

999

54

Non-GAAP research and development operating expense$

30,790

$

18,354

$

75,487

$

52,666

Non-GAAP research and development operating expense as a percentage of total revenue30.0

%

29.8

%

28.2

%

31.7

%

Sales and marketing operating expense on a GAAP basis$

86,991

$

43,759

$

218,706

$

118,523

Less: Stock-based compensation expense(1)18,516

6,379

34,647

11,487

Less: Employer taxes on employee stock transactions1,236

35

1,949

57

Non-GAAP sales and marketing operating expense$

67,239

$

37,345

$

182,110

$

106,979

Non-GAAP sales and marketing operating expense as a percentage of total revenue65.6

%

60.7

%

68.0

%

64.3

%

General and administrative operating expense on a GAAP basis$

25,330

$

93,758

$

78,785

$

110,507

Less: Stock-based compensation expense(1)9,122

85,619

23,671

88,090

Less: Employer taxes on employee stock transactions436

92

697

141

Less: Common stock charitable donation expense-

-

13,290

-

Non-GAAP general and administrative operating expense$

15,772

$

8,047

$

41,127

$

22,276

Non-GAAP general and administrative operating expense as a percentage of total revenue15.4

%

13.1

%

15.3

%

13.4

%

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

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

(94,751

)

$

(139,997

)

$

(225,940

)

$

(200,874

)

Add: Stock-based compensation expense(1)49,683

120,074

97,552

133,597

Add: Employer taxes on employee stock transactions2,439

196

4,137

277

Add: Common stock charitable donation expense-

-

13,290

-

Non-GAAP operating loss$

(42,629

)

$

(19,727

)

$

(110,961

)

$

(67,000

)

Non-GAAP operating margin(41.6

%)

(32.1

%)

(41.4

%)

(40.3

%)

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

(95,666

)

$

(138,141

)

$

(228,362

)

$

(198,072

)

Add: Stock-based compensation expense(1)49,683

120,074

97,552

133,597

Add: Employer taxes on employee stock transactions2,439

196

4,137

277

Add: Common stock charitable donation expense-

-

13,290

-

Add: Income tax effects and adjustments(20

)

(987

)

1,025

(1,414

)

Non-GAAP net loss$

(43,564

)

$

(18,858

)

$

(112,358

)

$

(65,612

)

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

(0.17

)

$

(0.18

)

$

(0.69

)

$

(0.63

)

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted259,152,303

102,852,461

162,728,527

103,856,815

Confluent, Inc.

Reconciliation of GAAP Measures to Non-GAAP Measures

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

(unaudited)



Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Reconciliation of GAAP total gross profit to non-GAAP total gross profit:Total gross $ 65,271 $ 42,441 $ 176,790 $ 111,694 profit on a GAAPbasisTotal gross 63.6 % 69.0 % 66.0 % 67.2 %margin on a GAAPbasisAdd: Stock-based 5,735 1,554 10,481 3,202 compensationexpense^(1)Add: Employertaxes on 166 24 492 25 employee stocktransactionsNon-GAAP total $ 71,172 $ 44,019 $ 187,763 $ 114,921 gross profitNon-GAAP total 69.4 % 71.6 % 70.1 % 69.1 %gross margin Reconciliation of GAAP operating expenses to non-GAAP operating expenses:Research anddevelopment $ 47,701 $ 44,921 $ 105,239 $ 83,538 operatingexpense on aGAAP basisLess:Stock-based 16,310 26,522 28,753 30,818 compensationexpense^(1)Less: Employertaxes on 601 45 999 54 employee stocktransactionsNon-GAAPresearch and $ 30,790 $ 18,354 $ 75,487 $ 52,666 developmentoperatingexpenseNon-GAAPresearch anddevelopment 30.0 % 29.8 % 28.2 % 31.7 %operatingexpense as apercentage oftotal revenue Sales andmarketing $ 86,991 $ 43,759 $ 218,706 $ 118,523 operatingexpense on aGAAP basisLess:Stock-based 18,516 6,379 34,647 11,487 compensationexpense^(1)Less: Employertaxes on 1,236 35 1,949 57 employee stocktransactionsNon-GAAP salesand marketing $ 67,239 $ 37,345 $ 182,110 $ 106,979 operatingexpenseNon-GAAP salesand marketingoperating 65.6 % 60.7 % 68.0 % 64.3 %expense as apercentage oftotal revenue General andadministrative $ 25,330 $ 93,758 $ 78,785 $ 110,507 operatingexpense on aGAAP basisLess:Stock-based 9,122 85,619 23,671 88,090 compensationexpense^(1)Less: Employertaxes on 436 92 697 141 employee stocktransactionsLess: Common - - 13,290 - stock charitabledonation expenseNon-GAAP generaland $ 15,772 $ 8,047 $ 41,127 $ 22,276 administrativeoperatingexpenseNon-GAAP generalandadministrative 15.4 % 13.1 % 15.3 % 13.4 %operatingexpense as apercentage oftotal revenue Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Reconciliation of GAAP operating loss to non-GAAP operating loss:Operating loss $ (94,751 ) $ (139,997 ) $ (225,940 ) $ (200,874 )on a GAAP basisAdd: Stock-based 49,683 120,074 97,552 133,597 compensationexpense^(1)Add: Employertaxes on 2,439 196 4,137 277 employee stocktransactionsAdd: Common - - 13,290 - stock charitabledonation expenseNon-GAAP $ (42,629 ) $ (19,727 ) $ (110,961 ) $ (67,000 )operating lossNon-GAAP (41.6 %) (32.1 %) (41.4 %) (40.3 %)operating margin Reconciliation of GAAP net loss to non-GAAP net loss:Net loss on a $ (95,666 ) $ (138,141 ) $ (228,362 ) $ (198,072 )GAAP basisAdd: Stock-based 49,683 120,074 97,552 133,597 compensationexpense^(1)Add: Employertaxes on 2,439 196 4,137 277 employee stocktransactionsAdd: Common - - 13,290 - stock charitabledonation expenseAdd: Income tax (20 ) (987 ) 1,025 (1,414 )effects andadjustmentsNon-GAAP net $ (43,564 ) $ (18,858 ) $ (112,358 ) $ (65,612 )lossNon-GAAP netloss per shareattributable to $ (0.17 ) $ (0.18 ) $ (0.69 ) $ (0.63 )commonstockholders,basic anddilutedWeighted-averageshares used tocompute net lossper share 259,152,303 102,852,461 162,728,527 103,856,815 attributable tocommonstockholders,basic anddiluted(1) In connection with a tender offer and secondary sales of our common stock and convertible founder stock, stock-based compensation for the three and nine months ended September 30, 2020 included $0.6 million, $23.9 million, $3.5 million, and $83.9 million of expense within cost of revenue, research and development expense, sales and marketing expense, and general and administrative expense, respectively, for an aggregate of $111.9 million of expense related to the amount paid in excess of the estimated fair value of common stock as of the date of the transactions.

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):

^(1) In connection with a tender offer and secondary sales of our common stockand convertible founder stock, stock-based compensation for the three and ninemonths ended September 30, 2020 included $0.6 million, $23.9 million, $3.5million, and $83.9 million of expense within cost of revenue, research anddevelopment expense, sales and marketing expense, and general andadministrative expense, respectively, for an aggregate of $111.9 million ofexpense related to the amount paid in excess of the estimated fair value ofcommon stock as of the date of the transactions.

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 September Nine Months Ended September 30, 30,

2021 2020 2021 2020

Net cash used in $ (18,029 ) $ (9,175 ) $ (81,184 ) $ (61,662 )operatingactivitiesCapitalized (2,052 ) (870 ) (3,863 ) (2,967 )internal-usesoftware costsCapital (563 ) (209 ) (2,236 ) (693 )expendituresFree cash flow $ (20,644 ) $ (10,254 ) $ (87,283 ) $ (65,322 )

Free cash flow (20.1 %) (16.7 %) (32.6 %) (39.3 %)marginNet cash providedby (used in) $ (267,860 ) $ 16,417 $ (204,332 ) $ (175,106 )investingactivitiesNet cash provided $ 8,240 $ 16,906 $ 831,168 $ 270,196 by financingactivities View source version on businesswire.com: https://www.businesswire.com/news/home/20211104006173/en/

CONTACT: Investor Contact Shane Xie investors@confluent.io

CONTACT: Media Contact Taylor Jones pr@confluent.io