Confluent outlines Q4 subscription revenue guidance of up to $296.5M as Flink cloud ARR jumps 70% sequentially

Earnings Call Insights: Confluent (CFLT) Q3 2025

MANAGEMENT VIEW

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CEO Edward Kreps highlighted strong Q3 results, stating, “We delivered a strong Q3, exceeding the high end of all guided metrics. Q3 subscription revenue grew 19% to $286 million. Confluent Cloud revenue grew 24% to $161 million, and non-GAAP operating margin expanded 3 percentage points to approximately 10%.” Kreps emphasized over 40% sequential growth in progressing late-stage pipeline, the largest net add in $100,000-plus ARR customer count in two years, and accelerating million-dollar-plus ARR customer growth as key drivers. He reported more than 1,000 customers using Flink in Q3 and cited Flink’s cloud ARR as having grown more than 70% sequentially.

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Kreps described notable customer wins, including Siemens Healthineers and EVO Banco, and referenced Confluent’s ongoing replacement of CSP streaming offerings, maintaining win rates "well above 90%" with average deal size "more than doubling over the past 2 quarters."

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The CEO described Confluent's strengthening partner ecosystem, with partners sourcing "well over 25% of our new business over the last 12 months" and recent recognition as MongoDB Partner of the Year and AWS launch partner for new AI tools.

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Kreps stated, “As AI becomes operational across every industry and geography, we believe that the demand for real-time context powered by data streaming will only grow.”

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CFO Rohan Sivaram remarked, “Our strong third quarter performance highlights the momentum of our data streaming platform and our diversified growth strategy. We delivered strong top line growth, stabilized our net retention rate, increased the adoption of new products and drove continued margin expansion.”

OUTLOOK

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Sivaram provided Q4 2025 guidance: “For the fiscal fourth quarter of 2025, we expect subscription revenue to be in the range of $295.5 million to $296.5 million, representing growth of approximately 18%. Non-GAAP operating margin to be approximately 7% and non-GAAP net income per diluted share to be in the range of $0.09 to $0.10.”

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Full-year 2025 guidance is: “Subscription revenue to be in the range of $1.1135 billion to $1.1145 billion, representing growth of approximately 21%. Non-GAAP operating margin to be approximately 7%, non-GAAP net income per diluted share to be in the range of $0.39 to $0.40 and adjusted free cash flow margin to be approximately 6%.”

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For Q4, cloud revenue is projected at approximately $165 million, or about 56% of subscription revenue.

FINANCIAL RESULTS

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Q3 subscription revenue grew 19% to $286.3 million, accounting for 96% of total revenue. Confluent platform revenue rose 14% to $125.4 million, and cloud revenue increased 24% to $161 million. U.S. revenue was $172.1 million (up 13%), and international revenue was $126.4 million (up 29%).

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Subscription gross margin reached 81.8%. Operating margin increased 340 basis points to 9.7%. Adjusted free cash flow margin increased 450 basis points to 8.2%. Net income per share was $0.13. Confluent ended Q3 with $1.99 billion in cash, cash equivalents, and marketable securities.

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Customer metrics included 2,533 customers with $20,000-plus ARR, 1,487 with $100,000-plus ARR (up 48 sequentially), and 234 $1 million-plus ARR customers. Net retention rate stabilized at 114% and gross retention rate remained close to 90%.

Q&A

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Brad Zelnick, Deutsche Bank: Asked about learnings from recent go-to-market changes and pipeline conversion trends. Kreps responded that field alignment and the specialization model for DSP "is working really well" and emphasized "very high confidence" in pipeline progression as a forward indicator.

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Zelnick followed up on RPO as a leading indicator. Sivaram said, “RPO is the single most important leading indicator with respect to the forward-looking organic growth of the business.”

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Sanjit Singh, Morgan Stanley: Asked when growth will bottom and about net accretive impact of new offerings. Kreps described stability in cloud growth and stated new offerings have been "a substantial tailwind" with bigger workloads and improved gross margin.

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Mark Murphy, JPMorgan: Asked about late-stage pipeline growth and streaming agents’ customer response. Kreps noted the 40% sequential pipeline growth as a benchmark of field execution and described streaming agents as having already "caught on" with customer adoption.

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Raimo Lenschow, Barclays: Inquired about Flink adoption and Q4 guidance confidence. Kreps and Sivaram highlighted breadth and depth of Flink usage and cited "momentum of new use cases moving into production" and "continued strength in Flink and the cloud side of Flink" as confidence drivers.

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Multiple analysts explored optimization trends, Flink growth, AI use cases, and competitive dynamics with CSPs and Databricks.

SENTIMENT ANALYSIS

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Analyst sentiment was neutral to slightly positive, with continued focus on pipeline momentum, Flink adoption, and visibility around optimization headwinds and cloud guidance. Analysts pressed for details on customer trends, the sustainability of growth, and competitive threats.

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Management maintained a confident and optimistic tone, especially in prepared remarks. Phrases such as “we are encouraged by the strong consumption growth” and “we are just getting started” were used. During the Q&A, management addressed concerns about optimization and AI customer transitions directly, using phrases like “we are very pleased with our Flink performance” and “we have very high confidence in [the pipeline].”

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Compared to the previous quarter, management’s tone shifted from cautious regarding optimization headwinds to more confident, citing stabilization and visible drivers of future growth.

QUARTER-OVER-QUARTER COMPARISON

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Guidance language was more constructive this quarter, with Q4 and full-year subscription revenue targets raised versus the previous quarter. Management now emphasizes improved visibility from larger and longer-term customer deals and accelerating late-stage pipeline.

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The strategic focus has shifted toward scaling Flink adoption and leveraging AI opportunities, with Flink cloud ARR up more than 70% sequentially and over 1,000 paying Flink customers.

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Analysts’ questions continued to revolve around cloud optimization, customer dynamics, and product differentiation, but the tone reflected greater acceptance of management’s explanations and more focus on execution.

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Key metrics such as subscription gross margin, operating margin, and free cash flow margin improved quarter-over-quarter. Net retention rate stabilized, and customer adds in the $100,000-plus ARR cohort reached a two-year high.

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Management’s confidence in field execution and product expansion was elevated, while analysts appeared more constructive, focusing on the sustainability of growth drivers.

RISKS AND CONCERNS

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Management acknowledged normalization but ongoing presence of optimization trends, noting they are "in the ranges that we've seen historically."

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A large AI-native customer’s move to self-hosted solutions will have a "low single-digit impact" on Q4 cloud revenue, and this is incorporated into guidance.

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Management cited "healthy levels of optimization" and a "stabilized" net retention rate, while warning that net retention can fluctuate in the short term.

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Analysts probed competitive threats, particularly from CSPs and Databricks, but Kreps stated, “We remain actually very close partners [with Databricks]… customers have chosen us for that real-time hub of integration for data.”

FINAL TAKEAWAY

Confluent’s Q3 2025 results underscore accelerating momentum in its cloud and Flink businesses, with subscription revenue and profitability metrics exceeding previous targets. The company raised its Q4 and full-year guidance, citing strong late-stage pipeline progression, expanding enterprise customer adoption, and stabilization in net retention rates. Management remains confident in its ability to drive durable, profitable growth through product innovation, execution on go-to-market initiatives, and increasing partner contributions, while acknowledging continued, but now normalized, optimization trends and customer transitions within its cloud segment.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/cflt/earnings/transcripts]

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