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MongoDB’s Strategic Expansion and Performance in Q3: A Focus on AI and Modernization

MongoDB is ramping up its modernization efforts as the demand for relational applications grows, showcasing the company’s significant long-term potential.

Increased Investment in Modernization Services

Relational applications cover a broad range of database types, programming languages, and customer-specific needs. Consequently, we anticipate ongoing demand for modernization projects that require substantial service engagements in both the short and medium term. To meet this demand, we are expanding our professional services capabilities, collaborating directly and with partners. Looking ahead, we aim to automate and simplify many aspects of the modernization process by utilizing insights gained from initial service engagements.

Although we are still in the early stages of scaling our legacy application modernization capabilities, we believe that this initiative will greatly contribute to our long-term growth. We are also investing to enhance our technical advantages as a key component of the emerging AI technology landscape. MongoDB is well-positioned to manage complex data structures that are critical for AI applications. The ability to effectively query rich data is essential, as AI solutions often rely on detailed and interrelated datasets for accurate predictions.

AI Application Development Landscape

For instance, a recommendation system must analyze not just an individual customer’s purchases but also their browsing history and peer behaviors. This requires a database capable of interlinking these diverse data points efficiently. MongoDB integrates various data types—source data, metadata, operational data, and vector data—into a unified platform, streamlining the developer experience compared to other options.

At this time, many customers are still experimenting with AI technologies and developing early proof-of-concept applications. While we observe an uptick in AI applications being deployed, a considerable number have yet to achieve significant market presence. Notably, only a small fraction of AI applications have reached the scalability typical of established enterprise-level applications.

Nonetheless, some AI applications are experiencing fast growth. For example, one particular app on our platform has expanded to a seven-figure workload, growing tenfold since the start of the year. Historically, we have seen platform shifts lead to a surge in successful AI applications as technology improves and becomes more affordable. Although predicting the timeline for widespread adoption remains challenging, we are confident in capturing our share of emerging successful AI applications, given our platform’s appeal to developers tackling more sophisticated use cases. We continue to enhance our product offerings, including the enterprise-grade Atlas Vector Search functionality, to better position MongoDB in the AI landscape.

Product Updates and Strategic Shifts

Exciting developments are underway. At our local developer conference in London last October, we unveiled MongoDB 8.0, which boasts enhanced performance—20% to 60% better than earlier versions—designed to meet robust security, reliability, and performance standards. Regular evaluations of our product offerings help us to prioritize high-demand options, allowing us to focus resources where they yield the best customer value.

As part of this process, we decided to consolidate our Atlas serverless offerings with smaller dedicated tiers, resulting in Atlas Flex—a simpler and more elastic solution. Affected customers will transition to this new model in Q4. Additionally, we are discontinuing Atlas DeviceSync and other underused features to concentrate our engineering efforts on our core platform. These decisions may not be easy but are crucial for enhancing the value we provide to a broader customer base.

Customer Adoption and Significant Projects

MongoDB continues to gain traction across various industries globally, with clients such as Financial Times, CarGurus, and Victoria’s Secret leveraging MongoDB Atlas for mission-critical projects. Victoria’s Secret successfully migrated its e-commerce platform to MongoDB Atlas, enhancing its architecture and performance. This transition enables the retailer to deliver a secure and efficient web and mobile experience for millions of users worldwide.

Other companies like Allianz, Alphamad, Swiss Post, and Paylocity are also turning to MongoDB for modernization efforts. Paylocity, for example, switched to MongoDB Atlas for its cloud-based payroll applications to handle increased traffic more effectively, reducing costs significantly while improving development speed.

From startups to established businesses, organizations such as NerdWallet and Cisco are utilizing MongoDB to build the next generation of AI-powered applications. Tealbook’s migration from PostgreSQL to MongoDB resolved several technical issues, leading to both better efficiency and greater scalability in their GenAI-powered supplier data platform.

In summary, we had a robust Q3, with both Atlas and Enterprise Applications (EA) exceeding our expectations. The new business developments position us well for continued success.

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MongoDB Reports Strong Q3 Results Amid Leadership Changes

Leadership Transition as Michael Gordon Steps Down and Cedric Pech Takes Charge

In a recent update from MongoDB, the company detailed its growth strategy focusing on the enterprise market and upcoming opportunities in AI applications. While discussing the company’s future, they also addressed the important changes in their senior leadership.

To begin, Michael Gordon, who has been part of MongoDB for nearly a decade, will be leaving his role. Throughout his tenure, Gordon played a key role in taking MongoDB public, increasing revenue nearly 50-fold, and scaling the company’s operations effectively. His contributions have made him a respected partner to the Board and a close friend to many leaders in the company. As he prepares for a well-deserved break, the search for his successor is underway, with both internal and external candidates being considered. Gordon will continue to assist as CFO until January 31st, ensuring a smooth transition. If a successor is not appointed by then, Serge Tanjga, Senior Vice President of Finance, will serve as the Interim CFO starting February 1st.

Additionally, Cedric Pech, the current Chief Revenue Officer, is being promoted to President of Worldwide Field Operations. In this new role, Pech will lead all customer-facing teams and drive go-to-market strategies. This organizational shift aims to enhance MongoDB’s focus on growth and the monetization of applications. Congratulations are in order for Pech on his well-deserved promotion.

Now, let’s hear from Michael Gordon, MongoDB’s Chief Operating Officer and Chief Financial Officer.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Thank you, Dev. Working with you has been incredibly rewarding. Over the past ten years, we’ve achieved significant milestones together at MongoDB, and I’m proud of the contributions made by our entire team. Despite our success, there’s still tremendous potential ahead as we capture more of the software market. Now, let’s dive into the financial results from the third quarter.

In Q3, MongoDB generated total revenue of $529.4 million, marking a 22% increase year-over-year and exceeding our guidance expectations. The growth of our product mix reflected Atlas’s impressive trajectory, with a 26% increase compared to last year, now constituting 68% of total revenue, though down from 71% last quarter.

Atlas revenue is recognized based on customer usage, which is linked to the activity of their applications. The consumption in Q3 surpassed our modest expectations, although the seasonal improvement was less pronounced than in prior years.

Non-Atlas revenue also performed beyond our predictions, benefiting significantly from several large multi-year contracts. Due to accounting standards, we recognized the entire licensing fee for these contracts at their start, leading to an uptick of over $15 million in non-Atlas revenue compared to the previous year.

Our customer base continued to expand, increasing by about 1,900 customers this quarter, bringing the total to over 52,600. Particularly notable is the growth of our direct sales customers, now numbering over 7,400, up from about 6,900 last year. This expansion was largely driven by Atlas, which had over 51,100 customers at quarter’s end.

During Q3, our net Annual Recurring Revenue (ARR) expansion was around 120%, with 2,314 customers contributing at least $100,000 in ARR. Now, focusing on our income statement, I will present non-GAAP results unless stated otherwise. The gross profit for this quarter stood at $405.7 million, resulting in a 77% gross margin, identical to the previous year.

This quarter’s operating income reached $101.5 million, corresponding to an operating margin of 19%, slightly better than the 18% margin we had a year ago. The primary driver here was our revenue exceeding expectations, particularly from high-margin multi-year licenses. We reported a net income of $98.1 million, or $1.16 per share, based on 84.2 million diluted shares.

On the balance sheet, we closed the quarter with $2.3 billion in cash and equivalents. We achieved an operating cash flow of $37.4 million, leading to free cash flow of $34.6 million after accounting for capital expenditures and lease repayments. This marks a slight decline from $35 million in free cash flow during the same quarter last year.

Looking forward, for Q4, we anticipate revenue to be between $515 million and $519 million, with non-GAAP income from operations projected at $55 million to $58 million. We also expect non-GAAP net income per share to be in the range of $0.62 to $0.65, based on an estimated 84.9 million diluted shares.

For the full fiscal year 2025, revenue is expected to be between $1.973 billion and $1.977 billion, with non-GAAP income from operations projected at $242 million to $245 million. Non-GAAP earnings per share should range from $3.01 to $3.03. It’s important to note that this guidance includes an effective tax provision of approximately 20%.

Finally, regarding Atlas consumption, we are preparing for a typical seasonal slowdown in Q4, impacted by the general usage patterns of our underlying applications.

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MongoDB Forecasts Modest Growth Despite Strong Q3 Performance

The company anticipates a dip in growth rates as it reallocates resources and experiences seasonal consumption shifts.

Analyzing Atlas Usage Trends

As the holiday season approaches, MongoDB is expecting moderated usage. Atlas consumption showed lower year-over-year numbers in Q3, which indicates that growth may continue to slow as we head into Q4. Additionally, a typical pattern of increasing non-Atlas revenue will likely reverse this quarter. This is primarily due to the absence of the significant boost from multi-year contracts that helped Q3’s results.

Strategic Resource Reallocation to Enhance Growth

In a strategic shift, part of the company’s market efforts is being redirected from mid-market clients to focus on enterprise customers. This change is anticipated to lead to fewer net additions in mid-market direct sales customers, which will slow direct sales growth in the near term. However, this investment adjustment is expected to drive higher revenue growth in the long run—a calculated trade-off that reinforces the company’s commitment to sustainable success.

Atlas Flex Clusters: A Transition Impact

With the rollout of Atlas Flex clusters in Q4, MongoDB will automatically transition customers in Q1. This shift is expected to have a one-time negative effect on reported customer counts due to around 4,000 low-spending serverless customers who likely won’t migrate to Flex. While these customers contribute minimally to revenue, they will influence overall customer statistics.

Q3 Success and Future Challenges

Despite these decelerations, the company remains optimistic, highlighting a successful Q3 and its potential in a rapidly growing market driven by technological advancements like AI. MongoDB plans to maintain careful investments and enhance its operational execution to seize long-term opportunities that lie ahead.

Questions & Answers:

Operator

[Operator instructions] Our first question for the day will be coming from Sanjit Singh of Morgan Stanley. Your line is open.

Sanjit Singh — Analyst

Thank you for taking my question. Congratulations, Michael, on your remarkable tenure at MongoDB. Your leadership truly stood out, and I look forward to seeing what your next steps will be.

To begin, I’d like to discuss Atlas. From what I’ve observed over the past two quarters, it seems that consumption has exceeded your initial expectations. Could you explain what is driving this improvement?

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Indeed. Our outlook earlier this year anticipated stable growth for Atlas consumption. However, we’ve observed lower year-over-year growth in the underlying consumption, even though Q2 and Q3 performed better than we anticipated. It’s important to clarify this distinction; the year-on-year comparison still shows a decline despite recent improvement.

Sanjit Singh — Analyst

I understand.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

To address your question, the performance really hinges on how applications are being used.

Sanjit Singh — Analyst

That makes complete sense. Dev, regarding AI, what implications do you foresee for MongoDB as clients begin deploying more AI agent applications that necessitate enhanced context and data handling capabilities?

Dev C. Ittycheria — President and Chief Executive Officer

AI agents are emerging with distinct functions focused on handling tasks. What’s crucial for AI is its need for comprehensive data structures to analyze relationships and patterns within datasets. For instance, an AI chatbot must provide real-time information to effectively assist customers. This capability to manage complex data relationships aligns well with MongoDB’s offerings, positioning us favorably in the market.

Additionally, we deliver a sophisticated search and vector search experience integral to our platform, enhancing our competitive edge. With enterprise-class security, we support operations in multiple environments, whether in the cloud or on-premises.

Sanjit Singh — Analyst

I appreciate your insights, Dev.

Dev C. Ittycheria — President and Chief Executive Officer

Thank you, Sanjit.

Operator

Thank you. One moment for the next question. Our next question comes from Tyler Radke of Citi. Your line is open.

Tyler Radke — Analyst

Hello, thanks for the opportunity to ask a question. Michael, congratulations on your decade at MongoDB. I’d like to revisit your sales execution comments. Earlier this year, you mentioned challenges with newly acquired workloads ramping up. How has the quality of workload acquisition progressed this year, and what does the consumption ramp look like for the coming year?

Dev C. Ittycheria — President and Chief Executive Officer

We have implemented several changes aimed at improving both the volume and quality of acquired workloads, which we believe is yielding positive results. However, since these workloads generally begin small and grow gradually, it may be premature to declare complete success. Nonetheless, we are encouraged by the results we are observing.

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MongoDB Shows Resilience Amid Shifting Market Dynamics

The tech company’s latest financial results reveal a solid performance, driven by a strategic focus on enterprise solutions.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Thanks, Tyler. Regarding the fiscal ’24 cohorts, the slower growth trend we noted earlier continues. Performance aligns with our revised expectations, but it’s still too soon to assess the fiscal ’25 cohorts fully. We need more quarters of data to understand their behavior better. However, it’s encouraging that we’ve seen success in our new business ventures, marking a positive trend.

Tyler Radke — Analyst

Thank you. On the EA side, you mentioned strong performance in non-Atlas business this quarter. Can you clarify the relative contributions from account duration versus new business?

Dev C. Ittycheria — President and Chief Executive Officer

Thanks, Tyler. Our EA product continues to resonate with customers and is integral to our ‘run anywhere’ strategy. We’ve observed a consistent demand for multi-year agreements, especially during this quarter, where we reported over $15 million in revenue benefits from large accounts—a pleasant surprise compared to last year’s Q3. This suggests a more stable environment than expected.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

To add, we are investing heavily in our EA business with enhancements like search and vector search capabilities. These initiatives not only enhance our open-source product offering but also help improve our EA adoption as benefits migrate across platforms. We see a growing number of large customers opting for on-prem solutions due to their flexibility, including those wanting to run AI workloads.

Tyler Radke — Analyst

Thank you.

Operator

Thank you. Our next question will come from Brad Reback of Stifel. Your line is open.

Brad Reback — Analyst

Thanks. Dev, you mentioned several investments during the call. Given the growth trajectory, should we expect these to limit margin growth in the coming year?

Dev C. Ittycheria — President and Chief Executive Officer

It’s premature to comment on next year’s specifics, but our investments are focused on expanding into legacy app modernization and solidifying our place as the leading database for GenAI applications. We believe these strategies will drive sustainable, long-term growth, and we remain confident in their potential.

Brad Reback — Analyst

Thanks. Regarding the MAAP program, do you foresee most workloads transitioning to Atlas or a balance with EA?

Dev C. Ittycheria — President and Chief Executive Officer

It’s early to say definitively. Initially, we anticipate more workloads being on Atlas, but the introduction of search and vector search into our EA product may shift that balance toward on-prem usage in the future. There’s an opportunity for MongoDB to support AI workloads in various contexts.

Brad Reback — Analyst

Great, thank you.

Dev C. Ittycheria — President and Chief Executive Officer

Thank you.

Operator

Next, we have Jason Ader from William Blair. Your line is open.

Jason Ader — Analyst

Thank you. I won’t repeat my earlier congratulations to Michael, but it’s been a pleasure working with you. Dev, regarding recent strength in EA, do you think it indicates a shift in how companies evaluate their on-prem and cloud workload placements?

Dev C. Ittycheria — President and Chief Executive Officer

Indeed, large enterprises still maintain significant on-prem workloads. While the idea that everything would migrate to the cloud was popular in the past, companies are now making more strategic choices based on existing infrastructure. Regulatory factors influence this, especially in Europe, where many banks retain their on-prem architecture. In contrast, businesses in Asia are embracing the cloud more readily. Overall, our ‘run anywhere’ strategy provides customers with vital options, enabling them to maximize their investments.

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MongoDB Strengthens Sales Strategy and Customer Education Amid Industry Shifts

Jason Ader — Analyst

Let’s dive deeper into the strategic investments you are making in sales and enterprise partnerships. Are you focusing on hiring more sales personnel, or are you investing more in system integrators (SIs)? Specific details would be highly appreciated. Thank you.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

To clarify, we’ve pinpointed multiple accounts we consider strategic due to their significant growth potential. We’ve observed that these accounts tend to expand swiftly when provided the correct combination of resources. However, not all of these resources will necessarily be quota-carrying sales personnel.

They may include additional technical sales representatives, professional services personnel, or enhanced customer support staff aimed at servicing and fostering these accounts. We also host educational sessions like hackathons or developer days to engage with developers at these accounts. These meetings allow us to collaborate with them as they plan their applications and demonstrate how to effectively use MongoDB to build those apps. Many developers initially have limited exposure to MongoDB, and through engagement, we can enlighten them on its simplicity and efficacy.

For instance, clients often believe they need to manage separate OLTP, search, vector, and caching databases. However, with MongoDB, everything integrates seamlessly, simplifying their back-end infrastructure. By making this clear, we empower customers to optimize their operations, resulting in faster application development and improved long-term management. We recognize that education on MongoDB’s capabilities leads to numerous growth opportunities, hence we are committed to enhancing the resources we deploy—not just those that drive sales but a comprehensive support system catered to the organization’s needs.

Jason Ader — Analyst

Thank you for the clarification.

Operator

Thank you. One moment for the next question. Our next question comes from Andrew Nowinski of Wells Fargo. Your line is open.

Andrew Nowinski — Analyst

Good afternoon. Congratulations on a fruitful quarter. You mentioned a customer who switched from Postgres and encountered issues with their PG vector function. How long had this customer been using Postgres before moving to MongoDB? Was their experience with Postgres a rebound from other databases that didn’t serve them well? Additionally, how frequently do you see migrations like this?

Dev C. Ittycheria — President and Chief Executive Officer

I can’t provide specific details about the duration of their Postgres usage. However, this trend is becoming clear in our industry. It’s important to note that Postgres is a 40-year-old technology that has benefitted from migrations from other relational databases such as Oracle, SQL Server, and MySQL.

Though considered an open-source database, Postgres shares the inherent limitations of all relational databases, such as inflexibility in schema design and difficulties in scaling and distributing data. For large data volumes, handling large objects often leads to complex solutions that can cause performance issues. Customers often default to Postgres due to a lack of awareness of alternatives.

Once we inform developers about MongoDB’s flexible schema, its ease of horizontal scaling, and its powerful query capabilities—such as sophisticated geospatial indexing—the response is overwhelmingly positive. They realize how much easier it is to manage data and projects with MongoDB. Importantly, our sector is not zero-sum; the success of MongoDB does not depend on the failure of Postgres. The market is vast, and we’re optimistic about these emerging opportunities, particularly as we see shifts from Postgres to our platform.

Andrew Nowinski — Analyst

Thank you; that was very insightful. Just a quick follow-up: If we adjust for the $15 million impact from the multi-year deal in Q3, is it likely that EA will remain down sequentially in Q4?

Michael Gordon — Chief Operating Officer and Chief Financial Officer

We haven’t provided specific guidance on that level, but I want to contextualize it within our full-year figures and the hurdles we identified at the beginning of the year, especially considering the robust performance we saw in Q3.

Andrew Nowinski — Analyst

Understood. Thank you.

Operator

Thank you. One moment for the next question. The next question comes from Raimo Lenschow from Barclays. Your line is open.

Raimo Lenschow — Analyst

Thank you. Regarding the strength in EA this quarter, can you elaborate on what we might expect from renewal situations in Q4? Also, how does this impact upsell and cross-sell possibilities as customers explore AI projects?

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Looking ahead to Q4, it’s typically a significant renewal quarter for us. However, because of the strong performance in multi-year deals, we expect a sequential decline in EA, which is something we don’t usually see, prompting us to raise it as a point of discussion. In terms of AI workloads, it’s still early to assess, and we’ll continue to refine our outlook as we approach our full-year guidance in March. We’ll also provide updates on cohort behaviors and insights regarding how multi-year agreements unfold.

Raimo Lenschow — Analyst

Great, thank you. Could you also touch on your partnerships with major cloud providers as they relate to your position in AI projects? How is your collaboration with their platforms, especially AWS, developing?

Dev C. Ittycheria — President and Chief Executive Officer

To address partnerships, our relationships continue to evolve, especially with AWS…

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MongoDB Reports Strong Performance and Growth in New Offerings

This past week, MongoDB hosted their re:Invent show, showcasing their robust financial health. They’ve successfully secured numerous deals in the last quarter, several of which are significant in size.

Growing Partnerships and Integrations with Major Cloud Providers

MongoDB has seen a strong desire for integrations with new products like Q and Bedrock. The company’s collaboration with Azure is particularly noteworthy. Although the partnership started off slowly, the current relationship between Azure and MongoDB is described as strong. A significant number of deals have been finalized.

As a participant in Azure’s native IC service program, MongoDB enjoys extensive integrations with several Azure features, including Fabric, Power BI, Visual Studio, Semantic Kernel, and Azure OpenAI Studio. Moreover, MongoDB is recognized as one of Azure’s largest marketplace partners.

Additionally, a slight increase in co-sales activity with GCP has been observed this past quarter. Changes in their compensation structure have facilitated a more beneficial collaboration with MongoDB, with expectations of concluding more substantial deals going into Q4. Overall, things are looking promising.

The Importance of Database Solutions for AI Integration

When discussing whether hyperscalers bundle their services, it was emphasized that since the inception of these platforms, they have coupled their database offerings with their other services. MongoDB has effectively aligned with this strategy, recognizing that database selection is a critical decision for customers, particularly those integrating AI capabilities.

Customers now increasingly acknowledge the significance of a robust data layer for AI applications, reinforcing the strength of MongoDB’s partnerships across the three hyperscalers.

Raimo Lenschow — Analyst

OK, perfect. Thank you.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Thanks, Raimo.

Operator

Thank you. One moment for the next question. Next, we have Brad Sills from Bank of America. Your line is open.

Brad Sills — Analyst

Great. Thank you so much, and congratulations, Michael, on your next move. I wanted to ask about new workloads such as vector search, stream processing, and relational migrator. Is there one of these that is ramping faster than expected? Any insights on the adoption of these new workloads?

Thank you.

Dev C. Ittycheria — President and Chief Executive Officer

Absolutely. Allow me to share insights on our new products. For example, our new Atlas Search capability allows customers to scale their search nodes independently based on their needs. This flexibility has been well received, with significant demand growing as customers adjust their configurations to fit their specific requirements.

Notably, one of the world’s largest banks utilizes Atlas Search to deliver a streamlined search experience on payment data for major corporate clients. Performance and scalability are vital in this customer-facing application. Similarly, a leader in AI-driven accounting software employs Atlas Search for invoice analytics, simplifying the process for finance teams to locate outstanding invoices.

The Atlas Vector Search also reports high uptake. Just this past quarter, we launched quantization, which dramatically reduces memory needs, enabling improved support for larger vector workloads. For instance, a global news organization is harnessing this technology to create tools that help journalists effectively review and verify vast information sources.

Interest in our streaming product is surging, with recent rollouts to additional hyperscalers. Customers report that integrating stream processing with MongoDB simplifies their operations significantly. Overall, the progress with our new offerings is encouraging.

By bundling these capabilities, we minimize the need for customers to incorporate a multitude of technologies for similar objectives, thus saving time and reducing associated risks.

Brad Sills — Analyst

That’s exciting to hear. Thank you, Dev. I’d also like to inquire about Cedric’s appointment. Should we anticipate any shifts in focus with his leadership going forward?

Dev C. Ittycheria — President and Chief Executive Officer

Cedric has been our CRO for about five to six years, expanding his responsibilities through this recent appointment. I have great confidence in his leadership skills, having worked alongside him at various companies. We aim to align our sales teams under his leadership to enhance collaboration for market growth, particularly focusing on app monetization and positioning MongoDB as the top database for GenAI applications.

Brad Sills — Analyst

That’s very promising. Thank you, Dev.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Thank you, Brad.

Operator

Thank you. One moment for the next question. Next up is Mike Cikos from Needham and Company. Your line is open.

Mike Cikos — Analyst

Hi everyone, thanks for taking my question. I wanted to revisit the consumption growth, which has been slightly better than expected for the second consecutive quarter. Is this growth widespread across all market segments and regions, or is it more concentrated in certain areas? I’m looking for a clearer picture of what’s happening.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Certainly, Mike. I would describe the growth trend as broad-based. We’re very pleased to observe this improvement and will continue to analyze the data for deeper insights.

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AI Workload Insights and Growing Opportunities: MongoDB’s Strategic Outlook

In our ongoing effort to keep you informed, we will share more insights as they become available.

It’s important to acknowledge a small but notable improvement as we move forward.

Mike Cikos — Analyst

Great. Dev, following up on Tyler’s initial question, you mentioned that some customers are starting to think about their workloads in a broader context, even considering running AI workloads on-premises. How much of this interest stems from their need to optimize for latency and cost, and how much indicates that we are still in the exploratory phase of AI rather than full production? Is there a way to separate these factors, or are they somewhat intertwined? Thank you.

Dev C. Ittycheria — President and Chief Executive Officer

It’s a combination of both factors. Some customers are committed to maintaining a large portion of their workloads on-prem, which naturally requires them to run AI workloads in the same environment, necessitating access to GPUs. Others are opting to rent GPUs from cloud providers while developing their AI applications.

We are definitely in the early stages. Companies are still learning and experimenting, with more applications entering production. As mentioned earlier, while thousands of AI workloads are currently running on MongoDB, only a small percentage have demonstrated a strong product-market fit.

The initial traction remains limited. However, as AI technology advances and becomes increasingly useful, we anticipate that applications will begin to gain traction. Interestingly, I’ve noticed more senior leaders focusing on the chips they utilize rather than the applications they are building, highlighting how early we are in this major platform transformation.

Mike Cikos — Analyst

That’s a compelling point. Thank you once more, everyone.

Dev C. Ittycheria — President and Chief Executive Officer

Thank you, Mike.

Operator

Thank you. We appreciate your patience. Our next question comes from the line of Eric Heath from KeyBanc. Your line is open.

Eric Heath — Analyst

Hi, thank you for taking my question. Dev, Michael, it seems like a key takeaway from the call is a renewed emphasis on enterprise architecture (EA). Should we rethink the EA business model as a healthy double-digit growth segment moving forward? As a follow-up, I understand it’s early to identify the fiscal ’25 cohort of workloads, but do they seem to be higher quality than those from fiscal ’24?

Dev C. Ittycheria — President and Chief Executive Officer

Michael, would you like to address the first question regarding EA?

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Absolutely. We’re fully committed to our “run anywhere” strategy. We are first investing in the community since many customers experience MongoDB through it. We aim to enhance their experience by integrating search and vector search capabilities into our core offerings, enabling them to start building applications right away.

Moreover, this will transition nicely into expanding those capabilities within the EA segment. While we’re clearly investing in EA, Atlas remains a significant aspect of our business and growth engine. We often launch new features on Atlas, which, due to its multi-cloud nature, offers a very compelling proposition for numerous customers.

Dev C. Ittycheria — President and Chief Executive Officer

I agree with that. When it comes to the new workloads, it’s still early. Just a reminder: these workloads usually start small but can grow rapidly. We’ve consistently expressed our satisfaction with the new business developments we’ve seen.

However, it will require time for these cohorts to mature as we monitor their progress. Nonetheless, we remain optimistic about the new business we’re acquiring.

Operator

Thank you. Please hold for the next question from William Power of Baird. Your line is open.

Brian Raferty Denyeau — Investor Relations

William, are you there?

William Power — Analyst

Yes, thank you. Dev, you mentioned positive developments around relational migrator. Could you elaborate on what is driving this increased interest?

It seems like AI is playing a role in this as well, so I’d appreciate any further details since this represents a significant long-term opportunity. Additionally, can you provide more insight into your investments in professional services, including possible quantification and timing?

Dev C. Ittycheria — President and Chief Executive Officer

We are genuinely excited about the chance to target legacy applications. Several factors are converging to drive this demand. Rising costs associated with managing legacy applications are becoming unbearable. In regulated industries, companies face pressure from regulators concerned about the risks of running these outdated systems, prompting immediate action.

Additionally, some vendors are discontinuing support, necessitating migration to modern technologies. The rise of Generative AI has also increased the need for businesses to leverage proprietary data efficiently, pushing them to modernize their systems. Lastly, with key personnel involved in these legacy apps retiring or leaving companies, firms face increased risks and challenges.

As a result, customers are eager to explore safe and effective ways to migrate off legacy applications. While we have always had the capability to assist with data transfer and schema mapping, rewriting applications proved challenging. However, with Generative AI’s advancements, we can significantly streamline this process.

Generative AI can facilitate code analysis, create tests to validate existing code, and even generate new code, allowing users to ensure the new code delivers the same results as the old one. This development reduces time and effort considerably, generating strong customer interest. Transitioning from one relational app to another may not represent modernization, so opting for MongoDB offers a truly modern platform.

MongoDB Sets Ambitious Goals Amidst Complex Application Migration

Company leadership shares insights on recent performance and future plans.

MongoDB is determined to enhance its platform, aiming for agility, performance, and scalability to meet future requirements. Despite being in the early stages, the company’s optimism is palpable.

Several pilot programs have been successfully launched, and migrations with clients are currently in progress. It’s essential to note that the applications being migrated are complex. Notably, MongoDB plans to focus on key applications—referred to as “crown jewels”—which are critically important yet challenging for their performance. While the journey to modernization might be lengthy, MongoDB remains committed to this transformative process, anticipating it will yield substantial long-term growth.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

According to Gordon, further investment in professional services is crucial to meet rising demand. These investments will have a positive effect on gross margins. The primary objective, however, is to increase Annual Recurring Revenue (ARR) by migrating additional workloads to MongoDB. Initially, a significant human resources component will be involved, but technological advancements are expected to play a larger role in the future.

William Power — Analyst

Power expresses gratitude for the insights shared.

Dev C. Ittycheria — President and Chief Executive Officer

Ittycheria acknowledges the appreciation and welcomes the next question.

Rudy Kessinger — Analyst

Kessinger seeks clarification regarding consumption growth. He recalls that last quarter, MongoDB mentioned growth that exceeded expectations. Although year-over-year growth has slowed compared to last year’s second quarter, there has been improvement since the first quarter. He asks if Q3 has shown similar stability or change in year-over-year consumption growth.

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Gordon notes that specific comparisons to Q2 haven’t been highlighted recently, with year-over-year growth being lower. He remarks on the seasonality of Q3, which usually demonstrates stronger performance than Q2, though this year’s rebound was slight compared to previous years. This context should help investors gauge expectations.

Rudy Kessinger — Analyst

He follows up by referencing previous comments made about AI applications. Kessinger asserts that they might not see large-scale AI deployments for at least another year and seeks confirmation on whether this assessment still holds.

Dev C. Ittycheria — President and Chief Executive Officer

Ittycheria provides insights into the current state of AI development, acknowledging that many existing applications lack advanced capabilities due to hardware limitations. Although numerous entities are developing AI technologies, few have achieved substantial success akin to the early days of the internet or mobile applications. He believes that significant growth in AI functionalities will occur over time, even if the timeline remains uncertain. MongoDB currently supports many applications that are showing rapid development, although meaningful impact from only a few has been observed.

Operator

The session concludes, and the operator invites Ittycheria for closing remarks.

Dev C. Ittycheria — President and Chief Executive Officer

Ittycheria expresses satisfaction with Q3 results, highlighting strong performance and revenue growth exceeding forecasts for both Atlas and Enterprise Advanced. Continued investments are being made to enhance MongoDB’s enterprise channel, where the potential for growth appears substantial. The company is optimistic about efforts to modernize legacy applications and establish MongoDB as a key player in the emerging AI landscape.

Ittycheria also thanks Michael for his decade-long contributions to the company and looks forward to future growth. He concludes by thanking participants for their engagement.

Operator

[Operator signoff]

Duration: 0 minutes

Call Participants:

Brian Raferty Denyeau — Investor Relations

Dev C. Ittycheria — President and Chief Executive Officer

Michael Gordon — Chief Operating Officer and Chief Financial Officer

Sanjit Singh — Analyst

Tyler Radke — Analyst

Brad Reback — Analyst

Jason Ader — Analyst

Andrew Nowinski — Analyst

Raimo Lenschow — Analyst

Brad Sills — Analyst

Mike Cikos — Analyst

Eric Heath — Analyst

Brian Denyeau — Investor Relations

William Power — Analyst

Rudy Kessinger — Analyst

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