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EX-32.2 - EXHIBIT 32.2 - MongoDB, Inc.mdb-103118x10qxex322.htm
EX-32.1 - EXHIBIT 32.1 - MongoDB, Inc.mdb-103118x10qxex321.htm
EX-31.2 - EXHIBIT 31.2 - MongoDB, Inc.mdb-103118x10qxex312.htm
EX-31.1 - EXHIBIT 31.1 - MongoDB, Inc.mdb-103118x10qxex311.htm
EX-2.1 - EXHIBIT 2.1 - MongoDB, Inc.mdb-103118x10qxex21.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________
FORM 10-Q
___________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number: 001-38240
___________________
MONGODB, INC.
(Exact Name of Registrant as Specified in its Charter)
___________________
Delaware
 
26-1463205
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1633 Broadway, 38th Floor
New York, NY
 
10019
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 646-727-4092
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
ý 
Smaller reporting company
¨
Emerging growth company
ý   
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No
As of December 3, 2018, there were 35,408,828 shares of the registrant’s Class A common stock and 18,194,724 shares of the registrant’s Class B common stock, each with a par value of $0.001 per share, outstanding.
 



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 





PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.
MONGODB, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
 
October 31, 2018
 
January 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
139,490

 
$
61,902

Short-term investments
382,681

 
217,072

Accounts receivable, net of allowance for doubtful accounts of $1,434 and $1,238 as of October 31, 2018 and January 31, 2018, respectively
37,497

 
46,872

Deferred commissions
19,143

 
11,820

Prepaid expenses and other current assets
8,653

 
5,884

Total current assets
587,464

 
343,550

Property and equipment, net
73,191

 
59,557

Goodwill
1,700

 
1,700

Acquired intangible assets, net
965

 
1,627

Deferred tax assets
701

 
326

Other assets
6,649

 
8,436

Total assets
$
670,670

 
$
415,196

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,942

 
$
2,261

Accrued compensation and benefits
21,615

 
17,433

Other accrued liabilities
12,169

 
8,423

Deferred revenue
136,609

 
114,500

Total current liabilities
172,335

 
142,617

Deferred rent, non-current
2,183

 
925

Deferred tax liability, non-current
42

 
18

Deferred revenue, non-current
17,229

 
22,930

Convertible senior notes, net
213,692

 

Other liabilities, non-current
67,944

 
55,213

Total liabilities
473,425

 
221,703

Commitments and contingencies (Note 5)


 


Stockholders’ equity:
 
 
 
Class A common stock, par value of $0.001 per share; 1,000,000,000 shares authorized as of October 31, 2018 and January 31, 2018; 35,189,254 and 13,303,028 shares issued and outstanding as of October 31, 2018 and January 31, 2018, respectively
35

 
13

Class B common stock, par value of $0.001 per share; 100,000,000 shares authorized as of October 31, 2018 and January 31, 2018; 18,406,366 and 37,371,914 shares issued as of October 31, 2018 and January 31, 2018, respectively; 18,306,995 and 37,272,543 shares outstanding as of October 31, 2018 and January 31, 2018, respectively
18

 
38

Additional paid-in capital
734,381

 
638,680

Treasury stock, 99,371 shares (repurchased at an average of $13.27 per share) as of October 31, 2018 and January 31, 2018
(1,319
)
 
(1,319
)
Accumulated other comprehensive loss
(380
)
 
(159
)
Accumulated deficit
(535,490
)
 
(443,760
)
Total stockholders’ equity
197,245

 
193,493

Total liabilities and stockholders’ equity
$
670,670

 
$
415,196

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

1


MONGODB, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
Subscription
$
60,090

 
$
37,885

 
$
157,588

 
$
99,603

Services
4,895

 
3,603

 
13,109

 
9,875

Total revenue
64,985

 
41,488

 
170,697

 
109,478

Cost of revenue:
 
 
 
 
 
 
 
Subscription
13,248

 
7,904

 
35,434

 
21,669

Services
4,510

 
3,167

 
12,567

 
8,789

Total cost of revenue
17,758

 
11,071

 
48,001

 
30,458

Gross profit
47,227

 
30,417

 
122,696

 
79,020

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
38,116

 
28,050

 
109,885

 
77,087

Research and development
23,179

 
16,588

 
63,254

 
45,414

General and administrative
14,986

 
9,829

 
38,467

 
26,533

Total operating expenses
76,281

 
54,467

 
211,606

 
149,034

Loss from operations
(29,054
)
 
(24,050
)
 
(88,910
)
 
(70,014
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
2,459

 
227

 
4,936

 
556

Interest expense
(4,358
)
 

 
(5,652
)
 
(8
)
Other income (expense), net
(400
)
 
(57
)
 
(1,424
)
 
298

Loss before provision for income taxes
(31,353
)
 
(23,880
)
 
(91,050
)
 
(69,168
)
Provision (benefit) for income taxes
(33
)
 
336

 
680

 
817

Net loss
$
(31,320
)
 
$
(24,216
)
 
$
(91,730
)
 
$
(69,985
)
Net loss per share, basic and diluted
$
(0.59
)
 
$
(1.39
)
 
$
(1.78
)
 
$
(4.74
)
Weighted-average shares used to compute net loss per share, basic and diluted
52,702,526

 
17,421,642

 
51,431,021

 
14,749,500

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

2


MONGODB, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
Net loss
$
(31,320
)
 
$
(24,216
)
 
$
(91,730
)
 
$
(69,985
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
9

 
4

 
(43
)
 
(33
)
Foreign currency translation adjustments
(49
)
 
21

 
(178
)
 
181

Other comprehensive income (loss)
(40
)
 
25

 
(221
)
 
148

Total comprehensive loss
$
(31,360
)
 
$
(24,191
)
 
$
(91,951
)
 
$
(69,837
)
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


MONGODB, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
 
Class A and
Class B
Common Stock
 
Additional Paid-In Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
 
Balances as of January 31, 2018
50,575,571

 
$
51

 
$
638,680

 
$
(1,319
)
 
$
(159
)
 
$
(443,760
)
 
$
193,493

Stock option exercises
2,540,312

 
2

 
17,583

 

 

 

 
17,585

Repurchase of early exercised options
(35,563
)
 

 

 

 

 

 

Vesting of early exercised stock options

 

 
1,045

 

 

 

 
1,045

Vesting of restricted stock units
138,812

 

 

 

 

 

 

Stock-based compensation

 

 
26,850

 

 

 

 
26,850

Issuance of common stock under the Employee Stock Purchase Plan
277,117

 

 
5,626

 

 

 

 
5,626

Equity component of convertible senior notes

 

 
81,683

 

 

 

 
81,683

Purchase of capped calls

 

 
(37,086
)
 

 

 

 
(37,086
)
Unrealized loss on available-for-sale securities

 

 

 

 
(43
)
 

 
(43
)
Foreign currency translation adjustment

 

 

 

 
(178
)
 

 
(178
)
Net loss

 

 

 

 

 
(91,730
)
 
(91,730
)
Balances as of October 31, 2018
53,496,249

 
$
53

 
$
734,381

 
$
(1,319
)
 
$
(380
)
 
$
(535,490
)
 
$
197,245

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


4


MONGODB, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended October 31,
 
2018
 
2017
Cash flows from operating activities
 
 
 
Net loss
$
(91,730
)
 
$
(69,985
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
3,334

 
2,789

Stock-based compensation
26,850

 
15,066

Amortization of debt discount and issuance costs
4,233

 

Non-cash interest on office financing lease
659

 

Deferred income taxes
(351
)
 
163

Change in fair value of warrant liability

 
(101
)
Change in operating assets and liabilities:
 
 
 
Accounts receivable
9,267

 
(4,653
)
Prepaid expenses and other current assets
(4,018
)
 
(2,120
)
Deferred commissions
(5,514
)
 
(2,217
)
Other long-term assets
(33
)
 
(670
)
Accounts payable
(165
)
 
687

Deferred rent
1,258

 
(85
)
Accrued liabilities
7,184

 
2,163

Deferred revenue
16,517

 
21,794

Net cash used in operating activities
(32,509
)
 
(37,169
)
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(3,698
)
 
(1,714
)
Proceeds from maturities of marketable securities
206,000

 
74,230

Purchases of marketable securities
(369,736
)
 
(72,879
)
Net cash used in investing activities
(167,434
)
 
(363
)
Cash flows from financing activities
 
 
 
Proceeds from exercise of stock options, including early exercised stock options
17,631

 
8,201

Proceeds from the issuance of common stock under the Employee Stock Purchase Plan
5,626

 

Repurchase of early exercised stock options
(327
)
 
(149
)
Proceeds from borrowings on convertible senior notes, net of issuance costs
291,145

 

Payment for purchase of capped calls
(37,086
)
 

Proceeds from tenant improvement allowance on build-to-suit lease
633

 

Proceeds from the IPO, net of underwriting discounts and commissions

 
205,494

Proceeds from exercise of redeemable convertible preferred stock warrants

 
1

Payment of initial public offering costs

 
(2,344
)
Net cash provided by financing activities
277,622

 
211,203

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(101
)
 
182

Net increase in cash, cash equivalents and restricted cash
77,578

 
173,853

Cash, cash equivalents and restricted cash, beginning of period
62,427

 
69,412

Cash, cash equivalents and restricted cash, end of period
$
140,005

 
$
243,265


5


Supplemental cash flow disclosure of noncash investing and financing activities
 
 
 
Vesting of early exercised stock options
$
1,045

 
$
950

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

 
$
1,529

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

 
$
1,171

Purchases of property and equipment included in accounts payable and accrued liabilities
$
1,806

 
$

Construction in progress related to build-to-suit lease obligations
$
11,683

 
$

Reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets, end of period, to the amounts shown in the statements of cash flows above:
 
 
 
Cash and cash equivalents
$
139,490

 
$
242,745

Restricted cash, current
515

 
520

Total cash, cash equivalents and restricted cash
$
140,005

 
$
243,265

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

6

MONGODB, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.
Organization and Description of Business
MongoDB, Inc. (“MongoDB” or the “Company”) was originally incorporated in the state of Delaware in November 2007 under the name 10Gen, Inc. In August 2013, the Company changed its name to MongoDB, Inc. The Company is headquartered in New York City. MongoDB is the leading, modern, general purpose database platform. The Company’s robust platform enables developers to build and modernize applications rapidly and cost-effectively across a broad range of use cases. Organizations can deploy the Company’s platform at scale in the cloud, on-premise, or in a hybrid environment. In addition to selling its software, the Company provides post-contract support, training, and consulting services for its offerings. The Company’s fiscal year ends January 31.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim condensed consolidated balance sheet and interim condensed consolidated statement of stockholders’ equity as of October 31, 2018, the interim condensed consolidated statements of operations and of comprehensive loss for the three and nine months ended October 31, 2018 and 2017 and the interim condensed consolidated statement of cash flows for the nine months ended October 31, 2018 and 2017, are unaudited. The interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position and its statement of stockholders’ equity as of October 31, 2018, its results of operations and of comprehensive loss for the three and nine months ended October 31, 2018 and 2017, and its statement of cash flows for the nine months ended October 31, 2018 and 2017. The financial data and the other financial information disclosed in the notes to these interim condensed consolidated financial statements related to the nine-month periods are also unaudited. The results of operations for the nine months ended October 31, 2018 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 2019 or for any other future year or interim period.
The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed balance sheet data as of January 31, 2018 was derived from the Company’s audited financial statements, but does not include all disclosures required by U.S. GAAP. Therefore, these interim unaudited condensed consolidated financial statements and accompanying footnotes should be read in conjunction with the Company’s annual consolidated financial statements and related footnotes included in its Annual Report on Form 10-K for the fiscal year ended January 31, 2018 (the “2018 Form 10-K”).
Use of Estimates
The preparation of the interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, revenue recognition, allowances for doubtful accounts, stock-based compensation, legal contingencies, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, fair value of property and equipment and accounting for income taxes. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates.
Emerging Growth Company Status
As an “emerging growth company” (“EGC”), the Jump-start Our Business Start-ups Act (“JOBS Act”), allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. As a result, the Company’s financial statements may not be comparable to the financial statements of

7

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


issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make the Company’s common stock less attractive to investors.
As a result of its market capitalization as of July 31, 2018, the Company expects that it will cease to qualify as an EGC as of January 31, 2019 and will no longer be able to take advantage of the extended transition period.
Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies described in the Company’s 2018 Form 10-K.
Related Party Transactions
All contracts with related parties are executed in ordinary course of business. There were no material related party transactions in the three and nine months ended October 31, 2018 and 2017. As of October 31, 2018 and January 31, 2018 , there were no material amounts payable to or amounts receivable from related parties.
New Accounting Pronouncements Not Yet Adopted
Goodwill Impairment. In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new standard will simplify the measurement of goodwill by eliminating step two of the two-step impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for the Company for the fiscal year ending January 31, 2021, though early adoption is permitted. The Company does not expect the adoption of the new accounting standard to have a material impact on its consolidated financial statements.
Leases. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. In 2018, the FASB issued ASU 2018-10, Leases, Codification Improvements and ASU 2018-11, Leases, Targeted Improvements, to provide additional guidance for the adoption of the new lease guidance, including an optional transition method. Since the Company anticipates losing its EGC status as of January 31, 2019, it expects to adopt the new lease standard on February 1, 2019. The Company plans to utilize the optional transition method, which allows entities, upon adoption of the standard, to continue to present their prior comparative periods in accordance with the current guidance in ASC 840, Leases. The Company anticipates the most significant impact of adopting the new standard will primarily be the establishment of a right-of-use asset and a corresponding lease liability for real estate operating leases in its consolidated balance sheets. The Company is currently evaluating whether this standard will have a material impact on its consolidated financial statements.
Revenue Recognition. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standard for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount to which an entity expects to be entitled when products are transferred to customers. Subsequently, the FASB has issued the following pronouncements related to ASU 2014-09: ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, which clarifies narrow aspects of ASC 606 or corrects unintended application of the guidance. The Company must adopt ASU 2016-08, ASU 2016-10, ASU 2016-12, and ASU 2016-20 with ASU 2014-09 (collectively, the “new revenue standard”).
The Company currently plans to adopt the new revenue standard using the full retrospective transition method for its annual results for the fiscal year ending January 31, 2019. While the Company continues to assess the potential impacts of the new revenue standard, the Company currently expects unearned subscription revenue to decline upon adoption. Currently, as the Company’s subscription offerings include software term licenses and post-contract customer support for which the Company has not established vendor specific objective evidence (“VSOE”), the entire subscription fee is recognized ratably over the term of the contract. However, under the new revenue standard, the requirement for VSOE for undelivered elements

8

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


is eliminated and, as a result, the Company is required to identify all performance obligations in a contract and recognize revenue based on each performance obligation separately. The Company currently expects that the portion related to the software term license deliverable will be recognized upon delivery, which may result in greater fluctuations in its consolidated financial statements. The Company currently does not believe that the new revenue standard will have a material impact on the other deliverables of each contract. The Company also expects the new revenue standard to impact recognition of contract acquisition costs, both with respect to the amounts that will be capitalized as well as the period of amortization. The Company continues to evaluate the effect that the new revenue standard will have on its consolidated financial statements and related disclosures. Its preliminary assessments are subject to change.
3.
Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value on a recurring basis as of October 31, 2018 and January 31, 2018, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):
 
Fair Value Measurement at October 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
893

 
$

 
$

 
$
893

Short-term investments:
 
 
 
 
 
 
 
U.S. government treasury securities
382,681

 

 

 
382,681

Total financial assets
$
383,574

 
$

 
$

 
$
383,574

 
Fair Value Measurement at January 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
45,918

 
$

 
$

 
$
45,918

Short-term investments:
 
 
 
 
 
 
 
U.S. government treasury securities
217,072

 

 

 
217,072

Total financial assets
$
262,990

 
$

 
$

 
$
262,990

The Company utilized the market approach and Level 1 valuation inputs to value its money market mutual funds and U.S. government treasury securities because published net asset values were readily available. As of October 31, 2018 and January 31, 2018, gross unrealized gains and unrealized losses for cash equivalents and short-term investments were not material, and the contractual maturity of all marketable securities was less than one year.
In addition to its cash, cash equivalents and short-term investments, the Company measures the fair value of its outstanding Notes (as defined below) on a quarterly basis for disclosure purposes. The Company considers the fair value of the Notes at October 31, 2018 to be a Level 2 measurement due to limited trading activity of the Notes. Refer to Note 4, Convertible Senior Notes, to the condensed consolidated financial statements for further details.
4.
Convertible Senior Notes
 In June 2018, the Company issued $250.0 million aggregate principal amount of 0.75% convertible senior notes due 2024 (the “Notes”) in a private placement and, in July 2018, the Company issued an additional $50.0 million aggregate principal amount of the Notes pursuant to the exercise in full of the initial purchasers’ option to purchase additional Notes. The Notes are senior unsecured obligations of MongoDB and interest is payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2018, at a rate of 0.75% per year.  The Notes will mature on June 15, 2024, unless earlier converted, redeemed or repurchased. The total net proceeds from the offering, after deducting initial purchase discounts and estimated debt issuance costs, were approximately $291.1 million.
The initial conversion rate is 14.6738 shares of MongoDB’s Class A common stock per $1,000 principal amount of Notes, which is equal to an initial conversion price of approximately $68.15 per share of Class A common stock, subject to

9

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


adjustment upon the occurrence of specified events. The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 15, 2024, only under the following circumstances:
(1)
during any fiscal quarter commencing after the fiscal quarter ending on October 31, 2018 (and only during such fiscal quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the Notes on each applicable trading day;
(2)
during the five-business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate of the Notes on each such trading day;
(3)
if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
(4)
upon the occurrence of specified corporate events (as set forth in the indenture governing the Notes).
On or after March 15, 2024, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder, regardless of the foregoing circumstances. Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of the Company’s Class A common stock or a combination of cash and shares of the Company’s Class A common stock, at the Company’s election. If a fundamental change (as defined in the indenture governing the Notes) occurs prior to the maturity date, holders of the Notes will have the right to require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if specific corporate events occur prior to the applicable maturity date, or if the Company elects to redeem the Notes, the Company will increase the conversion rate for a holder who elects to convert their notes in connection with such a corporate event or redemption in certain circumstances. It is the Company’s current intent to settle the principal amount of the Notes in cash. During the three months ended October 31, 2018, the conditions allowing holders of the Notes to convert have not been met. The Notes were therefore not convertible during the three months ended October 31, 2018 and were classified as long-term debt on the Company’s condensed consolidated balance sheets.
The Company may not redeem the Notes prior to June 20, 2021. On or after June 20, 2021, the Company may redeem for cash all or any portion of the Notes, at its option, if the last reported sale price of its Class A common stock was at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
In accounting for the issuance of the Notes, the Notes were separated into liability and equity components. The carrying amounts of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the respective Notes. This difference represents the debt discount that is amortized to interest expense over the respective terms of the Notes using the effective interest rate method. The carrying amount of the equity component representing the conversion option was $84.2 million. The equity component was recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the debt issuance costs of $8.8 million related to the Notes, the Company allocated the total amount incurred to the liability and equity components of the Notes based on their relative values. Issuance costs attributable to the liability component were $6.3 million and will be amortized, along with the debt discount, to interest expense over the contractual term of the Notes at an effective interest rate of 7.03%. Issuance costs attributable to the equity component were $2.5 million and are netted against the equity component representing the conversion option in additional paid-in capital.

10

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


The net carrying amount of the liability component of the Notes was as follows (in thousands):
 
October 31, 2018
Principal
$
300,000

Unamortized debt discount
(80,197
)
Unamortized debt issuance costs
(6,111
)
Net carrying amount
$
213,692

The net carrying amount of the equity component of the Notes was as follows (in thousands):
 
October 31, 2018
Debt discount for conversion option
$
84,168

Issuance costs
(2,485
)
Net carrying amount
$
81,683

As of October 31, 2018, the total estimated fair value of the Notes was approximately $403.2 million. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. The fair value of the Notes is primarily affected by the trading price of the Company’s common stock and market interest rates.
The following table sets forth the interest expense related to the Notes (in thousands):
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
Contractual interest expense
$
563

 
$

 
$
763

 
$

Amortization of debt discount
2,938

 

 
3,971

 

Amortization of issuance costs
174

 

 
234

 

Total
$
3,675

 
$

 
$
4,968

 
$

Capped Calls
In connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (“Capped Calls”). The Capped Calls each have an initial strike price of approximately $68.15 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $106.90 per share, subject to certain adjustments. The Capped Calls are expected to partially offset the potential dilution to the Company’s Class A common stock upon any conversion of the Notes, with such offset subject to a cap based on the cap price. The Capped Calls cover, subject to anti-dilution adjustments, approximately 4.4 million shares of the Company’s Class A common stock. The Capped Calls are subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events, a tender offers and announcement events. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders' equity and are not accounted for as derivatives. The cost of $37.1 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital and will not be remeasured.
5.
Commitments and Contingencies
Operating Leases
The Company has entered into non-cancelable operating leases, primarily related to rental of office space expiring through 2029. The Company recognizes operating lease costs on a straight-line basis over the term of the agreement, taking into account adjustments for market provisions such as free or escalating base monthly rental payments or deferred payment terms such as rent holidays that defer the commencement date of the required payments. The Company may receive renewal or expansion options, leasehold improvement allowances or other incentives on certain lease agreements. Total rent expense

11

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


related to operating leases was $2.6 million and $2.3 million for the three months ended October 31, 2018 and 2017, respectively, and $8.8 million and $6.6 million for the nine months ended October 31, 2018 and 2017, respectively.
In December 2017, the Company entered into a lease agreement for 106,230 rentable square feet of office space (the “Premises”) to accommodate its growing employee base in New York City. The Company received delivery of the Premises on January 1, 2018 to commence construction to renovate the Premises. During the construction period, the Company had certain indemnification obligations related to the construction. As a result, the Company was considered, for accounting purposes only, the owner of the construction project under build-to-suit lease accounting. Accordingly, the Company recorded the estimated fair value of the leased space as an asset, capitalized the costs incurred to renovate the Premises, and recorded a corresponding liability that represented the lease financing obligation.
On September 4, 2018, construction of the Premises was completed. The Company evaluated whether to de-recognize the build-to-suit asset and liability under the “sale-leaseback” accounting guidance. The Company concluded that it lacks transferability of the risks and rewards of ownership, and therefore did not meet with the requirements for sale-leaseback accounting. Accordingly, the Company accounts for the New York City office lease as a financing arrangement.
The Company vacated its former office space as of September 30, 2018, prior to the expiration of the lease on December 31, 2018. The remaining rent payable, deferred rent and associated leasehold improvements for the former office space were expensed in full on September 30, 2018 and resulted in a charge of $1.5 million recorded as a general and administrative operating expense in the Company’s unaudited condensed consolidated statement of operations. As of October 31, 2018, there was an associated liability of $0.8 million, which the Company expects to be settled by January 31, 2019.
Other Commitments
During the nine months ended October 31, 2018, other than the issuance of the Notes, there have been no material changes outside the ordinary course of business to the Company’s contractual obligations and commitments from those disclosed in the 2018 Form 10-K. Refer to Note 4, Convertible Senior Notes, to the condensed consolidated financial statements for further details.
Legal Matters
From time to time, the Company has become involved in claims and other legal matters arising in the ordinary course of business. The Company investigates these claims as they arise. Although claims are inherently unpredictable, the Company is currently not aware of any matters that, if determined adversely to the Company, would individually or taken together have a material adverse effect on its business, financial position, results of operations or cash flows.
The Company accrues estimates for resolution of legal and other contingencies when losses are probable and estimable. From time to time, the Company is a party to litigation and subject to claims and threatened claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, breach of contract claims, and other matters.
Although the results of litigation and claims are inherently unpredictable, the Company believes that there was not at least a reasonable possibility that the Company had incurred a material loss with respect to such loss contingencies, as of October 31, 2018 and January 31, 2018, therefore, the Company has not recorded an accrual for such contingencies.
Indemnification
The Company enters into indemnification provisions under its agreements with other companies in the ordinary course of business, including customers, business partners, landlords, contractors and parties performing its research and development. Pursuant to these arrangements, the Company agrees to indemnify, hold harmless, and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party as a result of the Company’s activities. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the fair value of these agreements is not material. The Company maintains commercial general liability insurance and product liability insurance to offset certain of the Company’s potential liabilities under these indemnification provisions.
The Company has entered into indemnification agreements with each of its directors and executive officers. These agreements require the Company to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with the Company.

12

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


6.
Equity Incentive Plans and Employee Stock Purchase Plan
Equity Incentive Plans
The Company adopted the 2008 Stock Incentive Plan (as amended, the “2008 Plan”) in 2008 and the 2016 Equity Incentive Plan (as amended, the “2016 Plan”) in 2016, primarily for the purpose of granting stock-based awards to employees, directors, and consultants. With the establishment of the 2016 Plan in December 2016, all shares available for grant under the 2008 Plan were transferred to the 2016 Plan. The Company no longer grants any stock-based awards under the 2008 Plan and any shares underlying stock options canceled under the 2008 Plan will be automatically transferred to the 2016 Plan.
Stock Options
The 2016 Plan provides for the issuance of incentive stock options to employees and nonstatutory stock options to employees, directors or consultants. The Board of Directors or a committee thereof determines the vesting schedule for all equity awards. Stock option awards generally vest over a period of four years with 25% vesting on the one-year anniversary of the award and the remainder vesting monthly over the next 36 months of the grantee’s service to the Company.
The following table summarizes stock option activity for the nine months ended October 31, 2018 (in thousands, except share and per share data and years):
 
Shares
 
Weighted-
Average
Exercise
Price Per
Share
 
Weighted-
Average
Remaining
Contractual
Term
(In Years)
 
Aggregate
Intrinsic
Value
Balance - January 31, 2018
12,637,435

 
$
7.63

 
7.72
 
$
246,227

Stock options exercised
(2,540,312
)
 
6.92

 
 
 
 
Stock options forfeited and expired
(640,584
)
 
8.43

 
 
 
 
Balance - October 31, 2018
9,456,539

 
7.76

 
7.04
 
697,319

Vested and exercisable - January 31, 2018
5,540,858

 
6.33

 
6.63
 
115,122

Vested and exercisable - October 31, 2018
5,377,483

 
$
6.89

 
6.29
 
$
401,189

Restricted Stock Units
The 2016 Plan provides for the issuance of restricted stock units (“RSUs”) to employees, directors and consultants. RSUs granted to new employees generally vest over a period of four years with 25% vesting on the one-year anniversary of the vesting start date and the remainder vesting quarterly over the next 12 quarters, subject to the grantee’s continued service to the Company. RSUs granted to existing employees generally vest quarterly over a period of four years, subject to the grantee’s continued service to the Company.
The following table summarizes RSU activity for the nine months ended October 31, 2018:
 
Shares
 
Weighted-Average Grant Date Fair Value per RSU
Unvested - January 31, 2018
245,746

 
$
26.20

RSUs granted
1,718,364

 
47.90

RSUs vested
(138,812
)
 
34.73

RSUs forfeited and canceled
(67,167
)
 
39.25

Unvested - October 31, 2018
1,758,131

 
$
46.24

Employee Stock Purchase Plan
In October 2017, the Board of Directors adopted, and stockholders approved, the 2017 Employee Stock Purchase Plan (“ESPP”). A total of 1.5 million shares of the Company’s Class A common stock have been authorized for issuance under the 2017 ESPP. Subject to any plan limitations, the 2017 ESPP allows eligible employees to contribute, normally through payroll

13

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


deductions, up to 15% of their earnings for the purchase of the Company’s Class A common stock at a discounted price per share. Except for the initial offering period, the ESPP provides for separate six-month offering periods. The Company’s current offering period began June 18, 2018 and is expected to end December 14, 2018.
Unless otherwise determined by the Board of Directors or a committee thereof, the Company’s Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is the lesser of (1) 85% of the fair market value of the Company’s Class A common stock on the first trading day of the offering period, which for the initial offering period is the price at which shares of the Company’s Class A common stock were first sold to the public, or (2) 85% of the fair market value of the Company’s Class A common stock on the last trading day of the offering period.
Stock-Based Compensation Expense
Total stock-based compensation expense recognized in the Company’s interim unaudited condensed consolidated statements of operations is as follows (in thousands):
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
Cost of revenue—subscription
$
555

 
$
183

 
$
1,403

 
$
503

Cost of revenue—services
335

 
123

 
800

 
292

Sales and marketing
3,090

 
1,704

 
7,437

 
4,400

Research and development
3,131

 
1,505

 
8,241

 
4,072

General and administrative
3,153

 
2,184

 
8,969

 
5,799

Total stock-based compensation expense
$
10,264

 
$
5,699

 
$
26,850

 
$
15,066

7.
Net Loss per Share
The Company calculates basic net loss per share by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Diluted net loss per share is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period, including stock options and restricted stock units.
Prior to the Company’s closing of its initial public offering in October 2017, the Company calculated basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company considered all series of redeemable convertible preferred stock to have been participating securities as the holders were entitled to receive non-cumulative dividends on a pari passu basis in the event that a dividend had been paid on common stock. For further details on the Company’s historical participating securities, including warrants to purchase redeemable convertible preferred stock and common stock, refer to the Company’s 2018 Form 10-K, specifically in Part II, Item 8, Financial Statements and Supplementary Data under the Notes to Consolidated Financial Statements.
Under the two-class method, basic net loss per share attributable to common stockholders was calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. The net loss attributable to common stockholders was not allocated to the redeemable convertible preferred stock as the holders of redeemable convertible preferred stock did not have a contractual obligation to share in losses. Diluted net loss per share attributable to common stockholders was computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, redeemable convertible preferred stock, stock options to purchase common stock, early exercised stock options, and warrants to purchase redeemable convertible preferred stock and common stock were considered common shares equivalents, but had been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect was anti-dilutive.
Basic and diluted net loss per share was the same for each period presented, as the inclusion of all potential common shares outstanding would have been anti-dilutive due to the net loss reported for each period presented.
The rights, including the liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 10 votes per share. As the liquidation and dividend rights are identical for Class A and Class B common stock, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.

14

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


The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net loss
$
(31,320
)
 
$
(24,216
)
 
$
(91,730
)
 
$
(69,985
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average shares used to compute net loss per share, basic and diluted
52,702,526

 
17,421,642

 
51,431,021

 
14,749,500

 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
$
(0.59
)
 
$
(1.39
)
 
$
(1.78
)
 
$
(4.74
)
The shares underlying the conversion option in the Notes were not considered in the calculation of diluted net loss per share as the effect would have been anti-dilutive. Additionally, the Notes were not convertible as of October 31, 2018. Based on the initial conversion price, the entire outstanding principal amount of the Notes as of October 31, 2018 would have been convertible into approximately 4.4 million shares of the Company’s Class A common stock. However, the Company expects to settle the principal amount of the Notes in cash. As a result, only the amount by which the conversion value exceeds the aggregate principal amount of the Notes (the “conversion spread”) is considered in the diluted earnings per share computation under the treasury stock method. The conversion spread will have a dilutive impact on diluted net income per share when the average market price of the Company’s Class A common stock for a given period exceeds the initial conversion price of $68.15 per share for the Notes. In connection with the issuance of the Notes, the Company entered into Capped Calls, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive. The Capped Calls are expected to partially offset the potential dilution to the Company’s Class A common stock upon any conversion of the Notes.
During the three months ended October 31, 2018, the average market price of the Company’s Class A common stock was $71.66, which exceeded the initial conversion price. Although the Notes were not convertible as of October 31, 2018, the Company calculated the potentially dilutive effect of the conversion spread, which is included in the table below.
The following weighted-average outstanding potentially dilutive common shares were excluded from the computation of diluted net loss per share for the periods presented because the impact of including them would have been anti-dilutive.
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
Redeemable convertible preferred stock (as converted)

 
24,316,192

 

 
26,045,352

Redeemable convertible preferred stock warrants (as converted)

 
1,339

 

 
30,122

Common stock warrants

 
116,485

 

 
120,190

Stock options to purchase Class A common stock
3,046,631

 
3,258,405

 
3,315,885

 
2,207,524

Stock options to purchase Class B common stock
7,137,570

 
9,321,627

 
8,136,949

 
9,783,945

Unvested restricted stock units
1,707,692

 
54,550

 
1,265,391

 
54,550

Early exercised stock options
94,026

 
318,240

 
146,248

 
236,231

Shares underlying the conversion spread in the convertible senior notes
215,879

 

 
71,960

 

8.
Income Taxes
The Company recorded a provision (benefit) related to income taxes of $(33) thousand and $0.3 million for the three months ended October 31, 2018 and 2017, respectively, and $0.7 million and $0.8 million for the nine months ended October 31, 2018 and 2017, respectively. The provision (benefit) related to income taxes was primarily due to foreign taxes offset by excess tax deductions in the United Kingdom with respect to stock option exercises. The calculation of income taxes is based

15

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


upon the estimated annual effective tax rates for the year applied to the current period income (loss) before tax plus the tax effect of any significant unusual items, discrete events or changes in tax law.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law and the new legislation significantly revised the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including the reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the deduction for newly generated net operating losses (“NOLs”) to 80% of current year taxable income and elimination of NOL carrybacks and one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated. The Company is required to recognize the effect of these significant tax law changes in the period of enactment.
Also on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Given the significant complexity of the Tax Act, anticipated guidance from the Internal Revenue Service about implementing the Tax Act, and the potential for additional guidance from the SEC or the FASB related to the Tax Act, the Company’s current estimates may be adjusted in future periods. The Company expects to complete its analysis during the quarter ending January 31, 2019, within the measurement period in accordance with SAB 118, and does not anticipate any material impact on its financial statements as a result of the Tax Act. The Company has not recorded any further adjustments during the nine months ended October 31, 2018. For information on the Company’s initial provisional estimates recorded during the year ended January 31, 2018, refer to the Company’s 2018 Form 10-K, specifically Part II, Item 8, Financial Statements and Supplementary Data under Note 11, Income Taxes, in the Notes to Consolidated Financial Statements.
For the Global Intangible Low-Taxed Income (“GILTI”) provisions of the Tax Act, the Company has not yet completed its assessment due to Internal Revenue Service regulations expected to be issued subsequent to October 31, 2018. The Company has elected an accounting policy to record GILTI as period costs if and when incurred.
The Company assesses uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainties in Tax. As of October 31, 2018, the Company’s net unrecognized tax benefits totaled $4.3 million, none of which would impact the Company’s effective tax rate if recognized. The Company anticipates that the amount of reasonably possible unrecognized tax benefits that could decrease over the next 12 months due to the expiration of certain statutes of limitations and settlement of tax audits is not material to the Company’s interim unaudited condensed consolidated financial statements.
9.
Segments and Geographic Revenue
The Company operates its business as one operating segment as it only reports financial information on an aggregate and consolidated basis to the Chief Executive Officer, who is the Company’s chief operating decision maker. The following table sets forth the Company’s total revenue by geographic area based on the customers’ location (in thousands):
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
Americas
$
42,889

 
$
28,045

 
$
112,477

 
$
74,965

Europe, Middle East and Africa
18,553

 
11,418

 
49,168

 
30,340

Asia Pacific
3,543

 
2,025

 
9,052

 
4,173

Total
$
64,985

 
$
41,488

 
$
170,697

 
$
109,478

Customers located in the United States accounted for 61% and 64% of total revenue for the three months ended October 31, 2018 and 2017, respectively, and 62% and 65% of total revenue for the nine months ended October 31, 2018 and 2017, respectively. Customers located in the United Kingdom accounted for 11% of total revenue for each of the three and nine months ended October 31, 2018 and 2017, respectively. No other country accounted for 10% or more of revenue for the periods presented.
As of October 31, 2018 and January 31, 2018, substantially all of the Company’s long-lived assets were located in the United States.

16

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


10. Subsequent Events
On October 9, 2018, the Company entered into an Agreement and Plan of Merger Agreement (the “Merger Agreement”) with Mammoth Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), ObjectLabs Corporation (“mLab”), and Shareholder Representative Services LLC, solely in its capacity as the Stockholder Agent, to acquire all of the issued and outstanding capital stock of mLab for a purchase price of $68.0 million in cash, subject to working capital, cash, debt, transaction expenses and other closing adjustments. mLab is a privately held company, headquartered in San Francisco, California, that offers cloud database services.
Pursuant to the Merger Agreement, on November 1, 2018, Merger Sub was merged with and into mLab, and mLab continued as the surviving corporation and as a wholly-owned subsidiary of the Company. The Merger Agreement contains customary representations and warranties of each of the parties. The Merger Agreement also contains indemnification rights whereby the Company and its subsidiaries will be indemnified for breaches of or inaccuracies in counterparty representations, warranties, covenants and certain other matters (subject to certain limitations).
In connection with the transaction, certain executives of mLab have accepted offers of employment made by the Company to continue with mLab following the closing of the Merger.



17


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unless the context otherwise indicates, references in this report to the terms “MongoDB,” “the Company,” “we,” “our” and “us” refer to MongoDB, Inc., its divisions and its subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our interim unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018 (the “2018 Form 10-K”). All information presented herein is based on our fiscal calendar, which ends January 31. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years ended January 31 and the associated quarters, months and periods of those fiscal years.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors,” set forth in Part 2, Item 1A of this Quarterly Report on Form 10-Q and our Quarterly Report on Form 10-Q filed with the SEC on September 7, 2018, in Part I, Item 1A of our 2018 Form 10-K and in our other filings with the SEC. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Our corporate website is located at www.mongodb.com. We make available free of charge, on or through our corporate website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing such reports to, the SEC. Information contained on our corporate website is not part of this Quarterly Report on Form 10-Q or any other report filed with or furnished to the SEC.
Overview
MongoDB is the leading modern, general purpose database platform. Our robust platform enables developers to build and modernize applications rapidly and cost-effectively across a broad range of use cases. Organizations can deploy our platform at scale in the cloud, on-premise, or in a hybrid environment. Software applications are redefining how organizations across industries engage with their customers, operate their businesses and compete with each other. A database is at the heart of every software application. As a result, selecting a database is a highly strategic decision that directly affects developer productivity, application performance and organizational competitiveness. Our platform addresses the performance, scalability, flexibility and reliability demands of modern applications while maintaining the strengths of legacy databases. Our business model combines the developer mindshare and adoption benefits of open source with the economic benefits of a proprietary software subscription business model.
We generate revenue primarily from sales of subscriptions, which accounted for 92% of our total revenue for both the three and nine months ended October 31, 2018, and 91% of our total revenue for both the three and nine months ended October 31, 2017. Our primary subscription package is MongoDB Enterprise Advanced, which represented 62% and 63% of our subscription revenue the three and nine months ended October 31, 2018, respectively, and 67% and 68% of our subscription revenue for the three and nine months ended October 31, 2017, respectively. MongoDB Enterprise Advanced is our comprehensive offering for enterprise customers that can be run in the cloud, on-premise or in a hybrid environment, and includes our proprietary database server, enterprise management capabilities, our graphical user interface, analytics integrations, technical support and a commercial license to our platform.
Many of our enterprise customers initially get to know our software by using Community Server, which is our free-to-download version of our database that includes the core functionality developers need to get started with MongoDB without all the features of our commercial platform. As a result, our direct sales prospects are often familiar with our platform and may have already built applications using our technology. We sell subscriptions directly through our field and inside sales teams, as well as indirectly through channel partners. Our subscription offerings are generally priced on a per server basis,

18


subject to a per server RAM limit. The majority of our subscription contracts are one year in duration and invoiced upfront, although a growing number of our customers are entering into multi-year subscriptions. When we enter into multi-year subscriptions, we typically invoice the customer on an annual basis.
We introduced MongoDB Atlas in June 2016. MongoDB Atlas is our cloud-hosted database-as-a-service (“DBaaS”) offering that includes comprehensive infrastructure and management of Community Server. During the three and nine months ended October 31, 2018, MongoDB Atlas revenue represented 22% and 18% of our total revenue, respectively, reflecting the continued growth of MongoDB Atlas since its introduction. We have experienced strong growth in both self-service customers of MongoDB Atlas and customers sold by our sales force. Self-service customers are charged monthly based on their usage while customers sold by our sales force typically sign annual commitments and pay in advance, for the entire year or monthly. Given our platform has been downloaded from our website more than 45 million times since February 2009 and over 15 million times in the last 12 months alone, our initial growth strategy for MongoDB Atlas is to convert developers and their organizations who are already using Community Server to customers of MongoDB Atlas, enabling them to enjoy the benefits of a managed offering.
We also generate revenue from services, which consist primarily of fees associated with consulting and training services. Revenue from services accounted for 8% of our total revenue for both the three and nine months ended October 31, 2018 and 9% of our total revenue for both the three and nine months ended October 31, 2017. We expect to continue to invest in our services organization as we believe it plays an important role in accelerating our customers’ realization of the benefits of our platform, which helps drive customer retention and expansion.
We believe the market for our offerings is large and growing. According to IDC, the worldwide database software market, which it refers to as data management software market, is forecast to be $59 billion in 2018 and growing to approximately $84 billion in 2022, representing a 9% compound annual growth rate. We have experienced rapid growth and have made substantial investments in developing our platform and expanding our sales and marketing footprint. We intend to continue to invest heavily to grow our business to take advantage of our market opportunity rather than optimizing for profitability or cash flow in the near term.
Key Factors Affecting Our Performance
Growing Our Customer Base
We are focused on continuing to grow our customer base. We have invested, and expect to continue to invest, heavily in our sales and marketing efforts and developer community outreach, which are critical to driving customer acquisition. As of October 31, 2018, we had over 8,300 customers across a wide range of industries and in over 100 countries, compared to over 4,900 customers as of October 31, 2017. All affiliated entities are counted as a single customer. As of October 31, 2018, we had over 1,700 customers that were sold through our direct sales force and channel partners, as compared to over 1,400 such customers as of October 31, 2017. These customers, which we refer to as our Direct Customers, accounted for 86% and 87% of our subscription revenue for the three and nine months ended October 31, 2018, respectively and 90% and 91% of our subscription revenue for the three and nine months ended October 31, 2017, respectively.
Increasing Adoption of MongoDB Atlas
MongoDB Atlas, our hosted cloud offering, is an important part of our run-anywhere strategy and allows us to generate revenue from Community Server, converting users who do not need all of the benefits of MongoDB Enterprise Advanced to customers. To accelerate adoption of this DBaaS offering, in 2017, we introduced tools to easily migrate existing users of our Community Server offering to MongoDB Atlas. We have also expanded our introductory offerings for MongoDB Atlas, including a free tier, which provides limited processing power and storage in order to drive usage and adoption of MongoDB Atlas among developers. Our MongoDB Atlas free tier offering is now available on all three major cloud providers (Amazon Web Services, Google Cloud Platform and, most recently, Microsoft Azure) in North America, Europe and Asia Pacific. In addition, MongoDB Atlas is available on AWS Marketplace, making it easier for AWS customers to buy and consume MongoDB Atlas. We have also begun to expand the functionality available in MongoDB Atlas beyond that of our Community Server offering.  We expect this will drive further adoption of MongoDB Atlas as companies migrate mission-critical applications to the public cloud.  The recent enterprise capabilities that we have introduced to MongoDB Atlas include advanced security features, enterprise-standard authentication and database auditing. We have invested significantly in MongoDB Atlas and our ability to drive adoption of MongoDB Atlas is a key component of our growth strategy. From its launch in June 2016, we have grown MongoDB Atlas to over 6,200 customers as of October 31, 2018, which includes new customers to MongoDB, as well as existing MongoDB Enterprise Advanced customers adding incremental MongoDB Atlas workloads.

19


Retaining and Expanding Revenue from Existing Customers
The economic attractiveness of our subscription-based model is driven by customer renewals and increasing existing customer subscriptions over time, referred to as land-and-expand. We believe that there is a significant opportunity to drive additional sales to existing customers, and expect to invest in sales and marketing and customer success personnel and activities to achieve additional revenue growth from existing customers. If an application grows and requires additional capacity, our customers increase their subscriptions to our platform. In addition, our customers expand their subscriptions to our platform as they migrate additional existing applications or build new applications, either within the same department or in other lines of business or geographies. Also, as customers modernize their information technology infrastructure and move to the cloud, they may migrate applications from legacy databases. Our goal is to increase the number of customers that standardize on our database within their organization, which can include offering centralized internal support or providing MongoDB-as-a-service internally. Over time, the average subscription amount for our Direct Customers has increased. In addition, self-service customers have begun to increase their consumption of our products, particularly MongoDB Atlas.
We monitor annualized recurring revenue (“ARR”) to help us measure our subscription performance. We define ARR as the subscription revenue we would contractually expect to receive from customers over the following 12 months assuming no increases or reductions in their subscriptions. ARR excludes self-service products, including MongoDB Atlas not sold on a commitment basis. ARR also excludes professional services. For customers who utilize our self-service offerings, we measure the annualized monthly recurring revenue (“MRR”), which is calculated by annualizing their usage of our self-serve products in the prior 30 days and assuming no increases or reductions in their usage. The number of customers with $100,000 or greater in ARR and annualized MRR was 490 and 320 as of October 31, 2018 and 2017, respectively. Our ability to increase sales to existing customers will depend on a number of factors, including customers’ satisfaction or dissatisfaction with our products and services, competition, pricing, economic conditions or overall changes in our customers’ spending levels.
Components of Results of Operations
Revenue
Subscription Revenue. Our subscription revenue is comprised of term licenses and hosted as‑a‑service solutions. Subscriptions to term licenses include technical support and access to new software versions on a when‑and‑if available basis. Revenue from our term licenses is recognized ratably and is typically billed annually in advance. Revenue from our hosted as‑a‑service solutions is primarily generated on a usage basis and is billed either in arrears or paid up front.
Services Revenue. Services revenue is comprised of consulting and training services and is recognized over the period of delivery of the applicable services. We recognize revenue from services agreements as services are delivered if sold on a stand‑alone basis and ratably over the contractual period if sold as a bundled element along with our subscriptions.
We expect our revenue may vary from period to period based on, among other things, the timing and size of new subscriptions, the rate of customer renewals and expansions, delivery of professional services, the impact of significant transactions and seasonality of or fluctuations in usage for our consumption‑based customers. Certain of our services agreements are sold as a bundled element along with our subscriptions. In those cases, when the delivery of services commences later than the start date of the subscription, no revenue is recognized until the delivery of services commences. As long as all other revenue recognition criteria have been met, once delivery of services commences, we record a cumulative catch up of revenue that would have been recognized over the period from the beginning of the subscription term until the commencement of service delivery.
Cost of Revenue
Cost of Subscription Revenue. Cost of subscription revenue primarily includes personnel costs, including salaries, bonuses and benefits, and stock‑based compensation, for employees associated with our subscription arrangements principally related to technical support and allocated shared costs, as well as depreciation and amortization. Our cost of subscription revenue for our hosted as‑a‑service solutions includes third‑party cloud infrastructure and overhead. We expect our cost of subscription revenue to increase in absolute dollars as our subscription revenue increases and, depending on the results of MongoDB Atlas, our cost of subscription revenue may increase as a percentage of subscription revenue as well.
Cost of Services Revenue. Cost of services revenue primarily includes personnel costs, including salaries, bonuses and benefits, and stock‑based compensation, for employees associated with our professional service contracts, as well as travel

20


costs, allocated shared costs and depreciation and amortization. We expect our cost of services revenue to increase in absolute dollars as our services revenue increases.
Gross Profit and Gross Margin
Gross Profit. Gross profit represents revenue less cost of revenue.
Gross Margin. Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including the average sales price of our products and services, the mix of products sold, transaction volume growth and the mix of revenue between subscriptions and services. We expect our gross margin to fluctuate over time depending on the factors described above and, to the extent MongoDB Atlas revenue increases as a percentage of total revenue, our gross margin may decline as a result of the associated hosting costs of MongoDB Atlas.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development and general and administrative expenses. Personnel costs are the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities, information technology and employee benefit costs.
Sales and Marketing. Sales and marketing expense consists primarily of personnel costs, including salaries, sales commission and benefits, bonuses and stock‑based compensation. These expenses also include costs related to marketing programs, travel‑related expenses and allocated overhead. Marketing programs consist of advertising, events, corporate communications, and brand‑building and developer‑community activities. We expect our sales and marketing expense to increase in absolute dollars over time as we expand our sales force and increase our marketing resources, expand into new markets and further develop our channel program.
Research and Development. Research and development expense consists primarily of personnel costs, including salaries, bonuses and benefits, and stock‑based compensation. It also includes amortization associated with intangible acquired assets and allocated overhead. We expect our research and development expenses to continue to increase in absolute dollars, as we continue to invest in our platform and develop new products.
General and Administrative. General and administrative expense consists primarily of personnel costs, including salaries, bonuses and benefits, and stock‑based compensation for administrative functions including finance, legal, human resources and external legal and accounting fees, as well as allocated overhead. We expect general and administrative expense to increase in absolute dollars over time as we continue to invest in the growth of our business and incur the costs of compliance associated with being a publicly traded company.
Other Income (Expense), net
Other income (expense), net consists primarily of interest income and gains and losses from foreign currency transactions.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes consists primarily of state income taxes in the United States and income taxes in certain foreign jurisdictions in which we conduct business, offset by benefits recorded in the United Kingdom, principally related to stock option exercises, which generated tax deductions in excess of U.S. GAAP expenses. As of January 31, 2018, we had net operating loss (“NOL”) carryforwards for federal, state and Irish income tax purposes of $209.5 million, $166.5 million and $182.3 million, respectively, which begin to expire in the year ending January 31, 2028 for federal purposes and January 31, 2021 for state purposes if not utilized. Federal losses generated in the current year ending January 31, 2019 are eligible to be carried forward indefinitely. Ireland allows NOLs to be carried forward indefinitely. The deferred tax assets associated with the NOL carryforwards in each of these jurisdictions are subject to a full valuation allowance.
Three and Nine Months Ended October 31, 2018 Summary
For the three months ended October 31, 2018, our total revenue was $65.0 million as compared to $41.5 million for the three months ended October 31, 2017. Our net loss was $31.3 million for the three months ended October 31, 2018 as compared to $24.2 million for the three months ended October 31, 2017.

21


For the nine months ended October 31, 2018, our total revenue was $170.7 million as compared to $109.5 million for the nine months ended October 31, 2017. Our net loss was $91.7 million for the nine months ended October 31, 2018 as compared to $70.0 million for the nine months ended October 31, 2017.
Our operating cash flow was $(32.5) million and $(37.2) million for the nine months ended October 31, 2018 and 2017, respectively. Our free cash flow was $(36.2) million and $(38.9) million for the nine months ended October 31, 2018 and 2017, respectively. See the section titled “Liquidity and Capital Resources—Non-GAAP Free Cash Flow” below.
Results of Operations
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our total revenue:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
 
(unaudited, dollars in thousands)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Subscription
$
60,090

 
$
37,885

 
$
157,588

 
$
99,603

Services
4,895

 
3,603

 
13,109

 
9,875

Total revenue
64,985

 
41,488

 
170,697

 
109,478

Cost of revenue:
 
 
 
 
 
 
 
Subscription(1)   
13,248

 
7,904

 
35,434

 
21,669

Services(1)   
4,510

 
3,167

 
12,567

 
8,789

Total cost of revenue
17,758

 
11,071

 
48,001

 
30,458

Gross profit
47,227

 
30,417

 
122,696

 
79,020

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing(1)   
38,116

 
28,050

 
109,885

 
77,087

Research and development(1)   
23,179

 
16,588

 
63,254

 
45,414

General and administrative(1)   
14,986

 
9,829

 
38,467

 
26,533

Total operating expenses
76,281

 
54,467

 
211,606

 
149,034

Loss from operations
(29,054
)
 
(24,050
)
 
(88,910
)
 
(70,014
)
Other income (expense), net
(2,299
)
 
170

 
(2,140
)
 
846

Loss before provision for income taxes
(31,353
)
 
(23,880
)
 
(91,050
)
 
(69,168
)
Provision for income taxes
(33
)
 
336

 
680

 
817

Net loss
$
(31,320
)
 
$
(24,216
)
 
$
(91,730
)
 
$
(69,985
)
 
(1) 
Includes stock‑based compensation expense as follows:
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
 
(unaudited, dollars in thousands)
Cost of revenue—subscription
$
555

 
$
183

 
$
1,403

 
$
503

Cost of revenue—services
335

 
123

 
800

 
292

Sales and marketing
3,090

 
1,704

 
7,437

 
4,400

Research and development
3,131

 
1,505

 
8,241

 
4,072

General and administrative
3,153

 
2,184

 
8,969

 
5,799

Total stock‑based compensation expense
$
10,264

 
$
5,699

 
$
26,850

 
$
15,066


22



 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
 
(unaudited, dollars in thousands)
Percentage of Revenue Data:
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Subscription
92
 %
 
91
 %
 
92
 %
 
91
 %
Services
8
 %
 
9
 %
 
8
 %
 
9
 %
Total revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Cost of revenue:
 
 
 
 
 
 
 
Subscription
20
 %
 
19
 %
 
21
 %
 
20
 %
Services
7
 %
 
8
 %
 
7
 %
 
8
 %
Total cost of revenue
27
 %
 
27
 %
 
28
 %
 
28
 %
Gross profit
73
 %
 
73
 %
 
72
 %
 
72
 %
Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
58
 %
 
67
 %
 
64
 %
 
70
 %
Research and development
36
 %
 
40
 %
 
37
 %
 
42
 %
General and administrative
23
 %
 
24
 %
 
23
 %
 
24
 %
Total operating expenses
117
 %
 
131
 %
 
124
 %
 
136
 %
Loss from operations
(45
)%
 
(58
)%
 
(52
)%
 
(64
)%
Other income (expense), net
(3
)%
 
 %
 
(1
)%
 
1
 %
Loss before provision for income taxes
(48
)%
 
(58
)%
 
(53
)%
 
(63
)%
Provision for income taxes
 %
 
 %
 
 %
 
 %
Net loss
(48
)%
 
(58
)%
 
(53
)%
 
(63
)%
Comparison of the Three Months Ended October 31, 2018 and 2017
Revenue
 
Three Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Subscription
$
60,090

 
$
37,885

 
$
22,205

 
59
%
Services
4,895

 
3,603

 
1,292

 
36
%
Total revenue
$
64,985

 
$
41,488

 
$
23,497

 
57
%
Total revenue growth reflects increased demand for our platform and related services. Subscription revenue increased by $22.2 million primarily due to $13.5 million from sales to new customers. The remainder of the increase in subscription revenue resulted from sales to our existing customers. The increase in services revenue was driven primarily by an increase in sales of professional services to new customers.

23


Cost of Revenue, Gross Profit and Gross Margin Percentage
 
Three Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Subscription cost of revenue
$
13,248

 
$
7,904

 
$
5,344

 
68
%
Services cost of revenue
4,510

 
3,167

 
1,343

 
42
%
Total cost of revenue
17,758

 
11,071

 
6,687

 
60
%
Gross profit
$
47,227

 
$
30,417

 
$
16,810

 
55
%
Gross margin
73
%
 
73
%
 
 
 
 
Subscription
78
%
 
79
%
 
 
 
 
Services
8
%
 
12
%
 
 
 
 
The increase in subscription cost of revenue was primarily due to a $4.1 million increase in third‑party cloud infrastructure costs, including costs associated with the growth of MongoDB Atlas, and a $0.5 million increase in personnel costs associated with increased headcount in our support organization. The increase in services cost of revenue was due to additional investments in headcount for our services organization to support global expansion of our business.
Overall gross margin remained flat. Our subscription margin declined by 1 percentage point due to the increased share of subscription revenue attributable to MongoDB Atlas and the increased third-party cloud infrastructure costs associated with supporting this growth. Our services gross margin is subject to fluctuations as a result of timing of sales of standalone consulting and training services and the timing of hiring, as well as the timing of revenue recognized for previously sold service agreements as a bundled element with subscriptions.
Operating Expenses
Sales and Marketing
 
Three Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Sales and marketing
$
38,116

 
$
28,050

 
$
10,066

 
36
%
The increase in sales and marketing expense included $6.4 million from higher personnel costs and stock-based compensation, driven by an increase in our sales and marketing headcount to 449 as of October 31, 2018 from 376 as of October 31, 2017. In addition, we experienced increased payroll taxes associated with employee stock option exercises and restricted stock unit vesting as a result of being a publicly traded company. Commission expense increased $2.5 million due to higher sales volume and greater headcount. An additional $0.6 million of the increase in sales and marketing expense was attributable to higher spend on marketing programs, including for MongoDB Atlas.
Research and Development
 
Three Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Research and development
$
23,179

 
$
16,588

 
$
6,591

 
40
%
The increase in research and development expense was primarily driven by an increase in personnel costs and stock-based compensation as we increased our research and development headcount by 22%. In addition, we experienced increased payroll taxes associated with employee stock option exercises and restricted stock unit vesting as a result of being a publicly traded company.



24


General and Administrative
 
Three Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
General and administrative
$
14,986

 
$
9,829

 
$
5,157

 
52
%
The increase in general and administrative expense was primarily due to a 25% increase in general and administrative personnel headcount, in part driven by the increased compliance requirements of being a publicly-traded company, resulting in an increase of $2.6 million from higher personnel costs and stock-based compensation. We also experienced increased payroll taxes associated with employee stock option exercises and restricted stock unit vesting as a result of being a publicly traded company. In addition, general and administrative expense included costs associated with the move of our New York City office, which resulted in a $1.5 million acceleration of rent payable, deferred rent and associated leasehold improvements related to our former office space. General and administrative expense also included $0.5 million of costs associated with our acquisition of mLab, which closed on November 1, 2018.
Other Income (Expense), net
 
Three Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Other income (expense), net
$
(2,299
)
 
$
170

 
$
(2,469
)
 
(1452
)%
Other expense, net for the three months ended October 31, 2018 was primarily due to interest expense related to our 0.75% convertible senior notes issued in June and July 2018 (the “Notes”), as well as interest expense associated with our financing lease for our New York City office, which expense had previously been capitalized as a build-to-suit asset during the construction phase. These expenses were partially offset by an increase in interest income derived from our larger average cash equivalents and short-term investments balance during the three months ended October 31, 2018 as compared to prior-year period.
Provision for Income Taxes
 
Three Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Provision (benefit) for income taxes
$
(33
)
 
$
336

 
$
(369
)
 
-110
 %
The decrease in the provision for income taxes resulted in a benefit during the three months ended October 31, 2018, primarily due to an increase in stock option exercises, which generated excess tax deductions in the United Kingdom. The benefit for income taxes was partially offset by an increase in foreign taxes as we continued our global expansion.
Comparison of the Nine Months Ended October 31, 2018 and 2017
Revenue
 
Nine Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Subscription
$
157,588

 
$
99,603

 
$
57,985

 
58
%
Services
13,109

 
9,875

 
3,234

 
33
%
Total revenue
$
170,697

 
$
109,478

 
$
61,219

 
56
%
Total revenue growth reflects increased demand for our platform and related services. Subscription revenue increased by $58.0 million primarily due to $26.6 million from sales to new customers. The remainder of the increase in subscription revenue resulted from sales to existing customers. The increase in services revenue was driven primarily by an increase in sales of professional services to new customers.

25


Cost of Revenue, Gross Profit and Gross Margin Percentage
 
Nine Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Subscription cost of revenue
$
35,434

 
$
21,669

 
$
13,765

 
64
%
Services cost of revenue
12,567

 
8,789

 
3,778

 
43
%
Total cost of revenue
48,001

 
30,458

 
17,543

 
58
%
Gross profit
$
122,696

 
$
79,020

 
$
43,676

 
55
%
Gross margin
72
%
 
72
%
 
 
 
 
Subscription
78
%
 
78
%
 
 
 
 
Services
4
%
 
11
%
 
 
 
 
The increase in subscription cost of revenue was primarily due to a $9.8 million increase in third‑party cloud infrastructure costs, including costs associated with the growth of MongoDB Atlas, as well as a $2.3 million increase in personnel costs associated with increased headcount in our support organization. The increase in services cost of revenue was due to additional investments in headcount for our services organization to support global expansion of our business.
Overall gross margin and subscription gross margin remained flat. Our services gross margin for the nine months ended October 31, 2018 was impacted by the additional investments in headcount in anticipation of future revenue growth. Our services gross margin is subject to fluctuations as a result of timing of sales of standalone consulting and training services and the timing of hiring, as well as the timing of revenue recognized for previously sold service agreements as a bundled element with subscriptions.
Operating Expenses
Sales and Marketing
 
Nine Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Sales and marketing
$
109,885

 
$
77,087

 
$
32,798

 
43
%
The increase in sales and marketing expense included $20.0 million from higher personnel costs and stock-based compensation, driven by an increase in our sales and marketing headcount to 449 as of October 31, 2018 from 376 as of October 31, 2017. In addition, we experienced increased payroll taxes associated with employee stock option exercises and restricted stock unit vesting as a result of being a publicly traded company. Sales and marketing expense also increased $5.7 million due to an increase in commission expense from higher sales volume and larger headcount. An additional $4.7 million of the increase in sales and marketing expense was attributable to increased travel and other expenses related to increased headcount, as well as higher spend on marketing programs, including for MongoDB Atlas.
Research and Development
 
Nine Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Research and development
$
63,254

 
$
45,414

 
$
17,840

 
39
%
The increase in research and development expense was primarily driven by an increase in personnel costs and stock-based compensation as we increased our research and development headcount by 22%. In addition, we experienced increased payroll taxes associated with employee stock option exercises and restricted stock unit vesting as a result of being a publicly traded company.

26


General and Administrative
 
Nine Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
General and administrative
$
38,467

 
$
26,533

 
$
11,934

 
45
%
The increase in general and administrative expense was primarily due to a 25% increase in general and administrative personnel headcount, in part driven by the increased compliance requirements of being a publicly-traded company, resulting in an increase of $8.7 million from higher personnel costs and stock-based compensation. We also experienced increased payroll taxes associated with employee stock option exercises and restricted stock unit vesting as a result of being a publicly traded company. In addition, general and administrative expense included costs associated with the move of our New York City office, which resulted in a $1.5 million acceleration of rent payable, deferred rent and associated leasehold improvements related to our former office space. General and administrative expense also included $0.5 million of costs associated with our acquisition of mLab, which closed on November 1, 2018.
Other Income, net
 
Nine Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Other income, net
$
(2,140
)
 
$
846

 
$
(2,986
)
 
(353
)%
The decrease in other income, net was primarily due to interest expense related to the Notes, as well as interest expense associated with our financing lease for our New York City office, which expense had previously been capitalized as a build-to-suit asset during the construction phase. These expenses were partially offset by an increase in interest income derived from our larger average cash equivalents and short-term investments balance during the nine months ended October 31, 2018 as compared to prior-year period.
Provision for Income Taxes
 
Nine Months Ended October 31,
 
Change
 
2018
 
2017
 
$
 
%
 
(unaudited, dollars in thousands)
Provision for income taxes
$
680

 
$
817

 
$
(137
)
 
-17
 %
The decrease in the provision for income taxes was primarily due to an increase in stock option exercises, which generated excess tax deductions in the United Kingdom and was recorded as an income tax benefit in the nine months ended October 31, 2018. The decrease in the provision was partially offset by an increase in foreign taxes as we continued our global expansion.
Liquidity and Capital Resources
As of October 31, 2018, we had cash, cash equivalents, short‑term investments and restricted cash totaling $522.7 million. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our short‑term investments consist of U.S. government treasury securities.
In June 2018, we issued $250.0 million aggregate principal amount of 0.75% convertible senior notes due 2024 (the “Notes”) in a private placement and, in July 2018, we issued an additional $50.0 million aggregate principal amount of the Notes pursuant to the exercise in full of the initial purchasers’ option to purchase additional Notes. The total net proceeds from the sale of the Notes, after deducting initial purchase discounts and estimated debt issuance costs, were approximately $291.1 million.
In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”). The Capped Calls are expected to partially offset the potential dilution to our Class A common stock upon any conversion of the Notes, with such offset subject to a cap based on the cap price. We used $37.1 million of the proceeds from the Notes to purchase the Capped Calls, which was recorded as a reduction to additional paid-in

27


capital. For further discussion on the Capped Calls, please refer to Note 4, Convertible Senior Notes, in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Previously, in October 2017, we closed our initial public offering of 9,200,000 shares of our Class A common stock at an offering price of $24.00 per share, including 1,200,000 shares pursuant to the underwriters’ option to purchase additional shares of our Class A common stock, resulting in net proceeds to us of $201.6 million, after deducting underwriting discounts and commissions of $15.5 million and offering expenses of $3.9 million. Prior to our initial public offering, we financed our operations principally through private placements of our redeemable convertible preferred stock, which resulted in net proceeds to us of $345.3 million.
We believe our existing cash and cash equivalents and short‑term investments will be sufficient to fund our operating and capital needs for at least the next 12 months.
We have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and consolidated statements of cash flows. As of October 31, 2018, we had an accumulated deficit of $535.5 million. We expect to continue to incur operating losses and negative cash flows from operations in the future and may require additional capital resources to execute strategic initiatives to grow our business. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing and international operation activities, the timing of new subscription introductions, and the continuing market acceptance of our subscriptions and services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.
The following table summarizes our cash flows for the periods presented:
 
Nine Months Ended October 31,
 
2018
 
2017
 
(unaudited, dollars in thousands)
Net cash used in operating activities
$
(32,509
)
 
$
(37,169
)
Net cash used in investing activities
(167,434
)
 
(363
)
Net cash provided by financing activities
$
277,622

 
$
211,203

Non‑GAAP Free Cash Flow
To supplement our interim unaudited condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we provide investors with the amount of free cash flow, which is a non‑GAAP financial measure. Free cash flow represents net cash used in operating activities less capital expenditures and capitalized software development costs, if any. During the nine months ended October 31, 2018 and 2017, we did not capitalize any software development costs. Free cash flow is a measure used by management to understand and evaluate our liquidity and to generate future operating plans. The exclusion of capital expenditures and amounts capitalized for software development facilitates comparisons of our liquidity on a period‑to‑period basis and excludes items that we do not consider to be indicative of our liquidity. We believe that free cash flow is a measure of liquidity that provides useful information to our management, investors and others in understanding and evaluating the strength of our liquidity and future ability to generate cash that can be used for strategic opportunities or investing in our business in the same manner as our management and Board of Directors. Nevertheless, our use of free cash flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Further, our definition of free cash flow may differ from the definitions used by other companies and therefore comparability may be limited. You should consider free cash flow alongside our other GAAP‑based financial performance measures, such as net cash used in operating activities, and our other GAAP financial results. The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP measure, for each of the periods indicated.

28


 
Nine Months Ended October 31,
 
2018
 
2017
 
(unaudited, dollars in thousands)
Net cash used in operating activities
$
(32,509
)
 
$
(37,169
)
Capital expenditures
(3,698
)
 
(1,714
)
Capitalized software

 

Free cash flow
$
(36,207
)
 
$
(38,883
)
Operating Activities
Cash used in operating activities during the