Yahoo Finance

Gregory Henry

Thanks, Matt, and thanks for the kind words. My sentiment is mutual. My time at Couchbase has been the most rewarding of my career, and I'm incredibly proud of everything we've accomplished as a team. We've built an incredible public company coming from a barely known startup.
I leave knowing that Couchbase will continue to build value in the years to come based on all that hard work, and I look forward to what the future brings. Thanks to our customers, partners, employees, management team, and Board of Directors that have supported me along the way.
Now, turning to our results, we had a strong finish to fiscal 2025, delivering a great quarter with all key metrics above our outlook. I'm pleased with our execution, strong renewals and expansions, momentum with Capella, and operating in free cash flow margin performance.
I'll now walk you through our fourth quarter and full year fiscal 2025 financial results in more detail. We ended the fourth quarter with total annual recurring revenue, or ARR of $237.9 million representing 17% growth year over year and 8% sequentially. Net new ARR with $17.6 million, up 14% year over year.
Like many of our peers, we experiences the impact of foreign currency fluctuations in the quarter. Relative to currency rates underpinning our Q4 and full year guidance, we delivered $239.8 million in total ARR, up 17% year over year and 9% sequentially, and above the high end of our guidance. This equates to net new ARR of $19.5 million, up 26% year over year.
This represents our highest ever net new ARR number and reflects the execution of large strategic deals that we've discussed throughout the year, continued growth in Capella contribution, and overall progress across industries and geographies with both Capella and Enterprise.
At the end of the quarter, Capella ARR was $38.5 million an increase of 16% from last quarter and 76% year over year. Capella now represents 16.2% of our total ARR, up from 15.1% last quarter and up from 10.7% at the end of fiscal 2024.
Turning to revenue, total revenue for the fourth quarter was $54.9 million, an increase of 10% year over year and 6% sequentially. Software revenue was $52.8 million, up 10% year over year and 7% sequentially. Professional services revenue was $2.1 million growing 6% year over year and down 8% sequentially.
For the full year, we delivered $209.5 million in total revenue, an increase of 16% from fiscal 2024. Full year software revenue was $200.4 million, up 17% year over year. We finished the year with $9.1 million in professional services revenue, up 7% year over year.
Q4 ARR per customer was $251,000, down from $273,000 in Q4 2024 and up from $244,000 in the third quarter. The year over year and sequential changes reflect the increasing mix of Capella offset by the significant renewals and expansions of large strategic accounts in Q4.
Our dollar-based net retention rate, or NRR was greater than 114% compared to the greater than 115% we've typically delivered since going public over three years ago. While we expect our NRR to return to historical levels in the second half of this fiscal year, given the trailing 12 month nature of this metric, we believe NRR could be below 115% until the anniversary, the anomalous loss and downsell we experienced and discussed earlier in fiscal 2025.
We exited the year with 947 customers, an increase of 44 net new customers from last quarter. Our Capella customer count grew by 10 in the quarter.
In discussing the remainder of the income statement, please note that unless otherwise stated, all references to expenses, results of operations, and share account are on a non-GAAP basis. In Q4, our gross margin was 89.4%. This compares to 90.4% a year ago and 88.2% last quarter. Our full year gross margin was 88.9% compared to 88.5% in fiscal 2024.
Turning to expenses, fourth quarter sales and marketing expenses were $28.3 million or 51% of revenue. For the full year, sales and marketing expenses were $118.4 million. We are pleased with the progress we've been making in improving sales and marketing efficiency, having reduced our spend from 69% of revenue in fiscal 2022 to 57% in fiscal 2025. We remain focused on driving further improvements in fiscal 2026.
Q4 Research and Development expenses were $13.3 million or 24% of revenue. Full year Research and Development expenses were $52.7 million or 25% of revenue. Fourth quarter general administrative expenses were $7.7 million or 14% of revenue. Full year general administrative expenses were $29.6 million also 14% of revenue.
Operating loss for Q4 was $144,000 or a negative 0.3% operating margin, compared to an operating loss of $4.1 million or negative 8% operating margin a year ago. Operating loss for the full fiscal year was $14.4 million or negative 7% operating margin, compared to an operating loss of $31.3 million or negative 17% operating margin in the prior fiscal year.
Net income attributable to common stockholders for Q4 was $78,000 or $0.00 per share. For the full fiscal year, net loss was $10.4 million or negative $0.20 per share.
Turning to the balance sheet and cash flow statement, we ended Q4 with $147.2 million in cash, cash equivalents, and short-term investments. We remain well capitalized to execute against our long-term growth strategy.
Our remaining performance obligations, or RPO totaled $251.1 million at the end of Q4, an increase of 4% year over year. We expect to recognize approximately 63%, or $158 million of total RPO's revenue over the next 12 months, representing growth of 7% year over year.
As a reminder, we experience fluctuations in our RPO balances due to a host of factors including renewal timing, as well as changes in the average contract duration. Operating cash flow for Q4 was $4.4 million and for the full year was negative $15.8 million.
Free cash flow for Q4 was $4 million representing a free cash flow margin of 7.3%. This is our highest quarterly free cash flow in company history, as well as our second positive quarterly free cash flow this year, indicative of the strong progress we've made towards achieving positive free cash flow. Free cash flow for the full year was negative $18.8 million or negative 9% free cash flow margin, up from negative 17.6% in fiscal 2024, and negative 30.2% in fiscal 2023.
Now, I will provide our guidance for Q1 and the full year fiscal 2026. As Matt discussed, we are entering fiscal 2026 with strong momentum and a growing pipeline of large strategic opportunities. In addition, we continue to be pleased with the growth of Capella and expect migrations, as well as growing consumption to continue to be significant drivers for us in the coming fiscal year, along with ongoing investments in product capabilities and strengthening our partner ecosystem.
As a reminder, several dynamics that we discussed this fiscal year, including the timing and composition of a renewal pool, have been contributing to the relative strength and visibility of our ARR outlook, and we expect these dynamics to continue to play out in Q1.
As an additional reminder compared to fiscal 2025, our 2026 renewal pool is both larger and more evenly distributed between the first and second half of the year. With these factors in mind, for the first quarter of fiscal 2026, we expect total revenue in the range of $55.1 million to $55.9 million for year over year growth of 8% at the midpoint. We anticipate ARR in the range of $242.9 million to $245.9 million which represents 18% growth year over year at the midpoint.
We expect a non-GAAP operating loss in the range of $5.4 million to negative $4.4 million. For the full year fiscal 2026, we expect total revenue in the range of $228 million to $232 million for year over year growth of 10% at the midpoint. We expect ARR in the range of $273.6 million to $278.6 million or year over year growth of 16% at the midpoint. And finally, we expect a non-GAAP operating loss in the range of negative $13.4 million to negative $8.4 million.
Lastly, we remain committed to improving our efficiency and driving continued leverage in our model. While we believe that we continue to have the opportunity to deliver free cash flow break even this fiscal year, as we discussed during our December 2023 Analyst Day, given the more back and loaded ARR performance in fiscal 2025, as well as certain timing elements, our first full year of positive free cash flow could be fiscal 2027.
However, we remain committed to driving free cash flow improvement in fiscal 2026 and being operating income positive by fiscal 2027.
Finally, as this is my last earnings call with Couchbase, I want to take a moment to thank all of you listening on the call today. I've enjoyed working with you and appreciate the sport over these past several years. While I will miss everything about Couchbase, I leave knowing that the company is in great hands and is set up for continued success for years to come.
Thank you all. With that, Matt and I are happy to take your questions, operator.

Question and Answer Session

Operator

(Operator Instructions)
Sanjit Singh, Morgan Stanley.

Sanjit Singh

Yeah, thank you for taking the questions and Greg, it's been a pleasure working with you and really excited to see what the next chapter of of your career. And I guess with that, just sort of thinking about Q4 Matt, really awesome performance on a constant currency basis.
I was wondering if you could sort of unpack for us the strength in Q4. Was it a function of executing on these strategic deals that you guys have been calling out for most of the year? Was it just better execution, was macro improving, just a little color on the strength in Q4.

Matthew Cain

Hey Sanjit, great to hear from you and appreciate the acknowledgement. We're certainly proud of the execution across the company.
Look, the result itself is great. What gives me a lot of confidence is the balance with which we delivered it. Certainly, we've been talking about the very high healthy pipeline of these large strategic accounts where we have the opportunity to emerge as a true platform winner. A big part of the quarter was executing against several of those. We've talked about the number of customers now over a million ARR. We crossed the $10 million dollar threshold with the second customer.
Simply put, I don't think you get to those levels if you're not truly viewed as a strategic platform provider, and we're really excited to be able to talk about some of those results, but it wasn't just that. We saw strength with other expansions, Capella migrations, some excellent new logo lands in both Enterprise and Capella.
We had one customer in particular that started out as a Community Edition that it was already over the million ARR mark in Capella. And so, I think it was really balanced execution, and I think what we've been talking about is, we've been building towards this and knew we had the pipeline to do it and it's great to, have put this one up quite frankly.

Sanjit Singh

Awesome. And then I guess a follow up for Greg. It's a topic that I think we revisit a couple of times every year, Greg, just the delta, the spread between your revenue outlook and your ARR guidance for growth.
Is that a function of more migration activity and sort of the timing of revenue on the consumption side versus the migration impact on the subscription side of the house. Just any color on the spread between the ARR outlook and the revenue outlook.

Gregory Henry

Yeah, thanks, Sanjit and obviously thanks for your comments. Yeah, you hit it right on the head. There's two things that are happening. As we continue to move further into Capella, obviously because that is a as-a-service offering, our services business is starting to contract, and we'll see that again coming this year, and obviously that's in the revenue number, not in the ARR number.
But the biggest part is the transition to Capella, the migrations. We are -- we did see an increase in migration in Capella this year, in fiscal '25, we think we'll see a step up in '26, which is driving some of the divergence. However, once we get through that, I think you'll start seeing when we get to fiscal '27 that the growth rates of ARR and revenue will start converging.
And we'll also see that manifest itself in the rule of 40. We've made tremendous progress on the bottom line, as you've seen. We haven't quite got that same pickup on the top line. That should be coming in fiscal '27.

Operator

Rob Oliver, Baird.

Robert Oliver

Great. Thanks, guys. I appreciate it. Greg, the Sanjit's comments, really enjoyed working with you and wish you all the best.
I guess first question for you guys is, just, Sanjit asked about the macro and Q4. I'll ask about it relative to this new fiscal year. It seems that there's a lot of cross currents out there in the market. So I just would be curious to hear from you guys as you look at the pipeline of opportunities this year, the renewal cohorts that you have.
How you kind of factored that into your guidance and specifically on some of those renewal cohorts. Obviously an opportunity to cross sell. You talked about the uptick in Capella migrations. If you could break down some more color around what you're seeing specific or what you expect to see specifically in those cohorts, that would be helpful. And then I had a quick follow up.

Matthew Cain

Hey Rob, this is Matt. I'll start. Look, a big dynamic that we've been articulating is the pipeline of large strategic accounts and executing through those, and I think it's important to note that that's a continuing dynamic as we go forward. There are several large accounts that we're still working with on the next level of expansion, and I think we've earned that right with the work that we've done to really build a differentiated platform, which has never been more relevant. So I'd say, that that's very healthy.
As we've articulated, when we go into certain years, the renewal base can have a different look to it, and we're pretty excited about the one that we're walking into this fiscal year. The size of it, quite frankly, is large and the shape is more balanced than was the case last year. So our ability to go execute against that and drive growth is an important factor that as we look forward.
I would tell you that we've never had a better pipeline of customers set up for Capella migrations, and we are not shy about talking to every customer about that and figuring out the right moment for them to move, either a subset of their workloads or the entirety of their estate into the Capella offering. And we're not in a hurry to do unnatural things for our customers at the same time walking them through the TCO advantages that come with Capella. And I think that's another factor that's going to drive incremental business for us.
As it pertains to the buying environment, I think we maintain prudence as we think about all factors. These are very big decisions that enterprises are making and we take pride in working hard at articulating the value of our offering. I think there is a lot of attention being paid in large enterprises on spend levels, but at the same time, customers have to invest in platforms that are going to unlock the next phase of applications, particularly in AI.
And we love how we're positioned in the world of agentic-based applications with the scale and performance of our platform. So I'd say those are all balanced factors that we consider when we lay out the numbers for the future year.

Robert Oliver

Got it. Super helpful. Thanks, Matt. And then just one quick follow up. I think this is the second quarter in ARR or at least the last few quarters where you guys have called out meaningful Community migration, and I just wanted to get a sense for, is that a function of where you guys are in your motion and being able to articulate sort of the compelling nature of kind of moving from Community to you guys?
Is it something about Generative AI in the market? What are some of the drivers of that and should we expect that to continue to be a driver for you guys? Thank you.

Matthew Cain

Yeah, look, Rob. I think all of those can be factors. I think fundamentally, companies are evaluating investment in technology and what return are they getting on that. Data security and reliability has never been more important. Neither has support as people are building the next set of applications. I think with the utility that comes with Capella, the ROI decision making and somebody that may have been running Community Edition, evaluating Capella can accelerate the kind of movement to a paid offering.
There are other factors in mind, but we do, we think that that's going to continue to be a source of new business for us along with many other avenues where we get customers started with the technology and see a pretty dramatic growth as we unlock their developers' ability to build application that much faster on a reliable platform from cloud to edge, and so on and so forth.

Gregory Henry

Yeah, and Rob, I just jump in and say that the other thing that we hear from those who are in the Community coming over to Capella in particular are, hey, look, when I was on Community, the product worked, I didn't need support. That's what I would've been paying for, but I am willing to pay for the other service and the management of the database, and particularly when you're talking about smaller customers that just don't have the ability to have big DBA teams and other things, they're willing to offload that and that's where we can really, again, further monetize the Community Edition group.

Robert Oliver

Very helpful. Thanks guys. Appreciate it.

Gregory Henry

Thank you, Rob.

Operator

Jason Ader, William Blair.

Jason Ader

Yeah, thank you. Matt, I guess start with you. You guys have been growing steadily in the mid 10s, showing nice leverage, I think a lot of people don't believe you're going to do the net new ARR that you did, so congrats on that. I don't want to take anything away from the trajectory and the history here, but what needs to happen for you guys to kind of break out of the range that you're in right now in terms of revenue growth.
Like, if you were to think about the next few years, what do you think needs to happen for the company to really accelerate the top line growth, so let's call it something with a 2 in front of it?

Matthew Cain

Look, Jason, I appreciate the comments on the quarter and the focus on the future, quite frankly. Look, I think we have all the ingredients in place and it's largely going to come down to execution. If I think fundamentally about where we sit, do we have a differentiated data platform that the next set of developers are going to rely upon for the applications they're building out? And are we continuing to innovate at extremely rapid pace to make that even more differentiated? The answer is yes.
And we are extremely convicted on our strategic position and the road map ahead of us as we continue to emerge as a winning AI native data platform. The work that we've done on the go-to-market side to refine our value proposition and how we articulate and open up funnel dynamics with things like perpetual free tier and articulating the value of Capella migrations, the leading indicators are all there for us to deliver on the commitments that we've made, and we continue to attract world class people and all aspects of the company.
So, I am very convicted on the go-forward future and it's up to us to execute against that. But if we look at again the leading indicators, the health of the pipeline, the buildup of customers who are fundamentally understanding the value proposition of Capella and the need for developers to think differently about the future application sack with AI, we've never been better set up to execute on our commitments. So these things are largely in our control and rest assured we're going to do everything possible to make them happen.

Gregory Henry

And Jason, if I could just add, if I go back to looking at fiscal '23, our ARR reported growth rate was 23%,. Fiscal '24 was 25%. Yes, this year was high 10s. A lot of it goes back to the loss and downsell we saw in Q2 that was sort of unexpected and having a renewal base that wasn't quite as big. Otherwise, I think we could have probably seen our way to a 20% growth rate this year. As Matt said, the renewal and the rebuy of Capella gets bigger next year, more opportunity, and so I think that's what gives us confidence that we can return to being a 20% grower.

Jason Ader

Alright. Then, Matt, just a quick follow up on the news today. Any observation on the IBM deal today to acquire data stacks in terms of what it means for the database industry and the competitive landscape?

Matthew Cain

Yeah, well, look, if we look over the last two days, we've seen acquisitions from two important companies in the data world, Mongo's acquisition yesterday and IBM's today, and I think it speaks to the validation of what we've been talking about the importance of databases and the combination of analytical and operational data platforms that can serve applications in an AI world.
So, again, we think it reinforces our strategic positioning and how enterprises are needing to think very strategically about data platforms and again are excited to execute on our strategy, as a standalone company where we think there's immense value to unlock in front of us.

Jason Ader

Alright, and then just a final note, Greg, best of luck. It was great working with you. Hope we cross paths again.

Gregory Henry

Absolutely, Jason. Thank you. Pleasure.

Operator

Mike Cikos, Needham and Company.

Michael Cikos

Great, thanks for taking the questions here, guys, and I'll start off by thanking you, Greg, for the time together and good luck on your future endeavor here.
For Matt, maybe if we could just kick off, I know Capella AI Services is early days here, but can you talk to the initial customer feedback? I imagine you probably ran pilots or had this an even a handful of select customers before taking it into this private preview stage we're in today. What are customers telling you and what are their findings, and then I have a follow up. Thank you.

Matthew Cain

Hey Mike, yeah. As you can imagine, we obsess over customer input and I would extend that to partners and other members of the ecosystem as we talk about our strategy, talk about some of the problem that the customers and partners are facing and evaluate that against our roadmap.
Quite frankly, I think what's coming out first, Mike, is that the fundamental advantages of Couchbase, scale, performance, our cloud to edge architecture, our data reliability, some of the tooling that we've enabled for developers, those strengths have never been more relevant than they are today.
And when you layer on what we're doing with the AI services and bringing AI tools in a very efficient way to developers with the powerful data platform that we offer, they're starting to realize that we can be used as an even more strategic platform. And the ease at which we're doing that for developers and really bringing best-to-breed AI technology to the highest performing data platform from cloud to edge, we're getting a lot of validation.
And you can probably appreciate, when we're engaging in multi-year strategic discussions with some of the largest enterprises in the world, they're not just buying the technology and the Capella as a service offering that's available today. They're investing in a company to be a long term partner, and that's important, the roadmap of future services.
And so when we can talk about not just AI services that are an early preview, but some of the other roadmap items that we have ahead of us over the next many quarters, I think the result that we put up in Q4 is a huge validation of our strategic positioning on a go-forward basis. So we love the feedback that we're getting.
Our engineering teams are flying into the office every day, more excited to work on the next set of features than I've ever seen them, and I think we are really excited about the path forward and the role that we're going to play as a data platform provider for enterprises for a long time.

Michael Cikos

That's great to hear. And for the follow up here, I think we're all aware of the benefit in Q1 last year to license based on that early renewal you guys have seen in Q4 of fiscal '24. We just wanted to get a better sense. We're talking about the size of this renewal pool, the confidence you guys have in the step up in anticipated Capella migrations this coming year.
Can you provide additional detail? What gives you that confidence here in those Capella migrations? Is there additional scrubbing a pipeline that's gone into place? Are you implementing more rigorous processes? Just anything to help instill that confidence with the rest of the us will be great. Thank you.

Matthew Cain

Mike I'll comment and for to Greg if he has anything to add on. I mean, look, we have every single customer from one to end mapped out and have a keen understanding of where they sit from a Capella perspective, whether they're all in on Capella today, if they've started a migration, if they have a plan one coming up, if they've done a subset of their estate.
And so I think simply put, when we obsess over that pipeline and the field teams have done an amazing job of progressing that, we just have more opportunities that are closer to ready to move to migration. And in some cases, Mike, we're being pleasantly surprised by things going faster than what customers would have previously told us.
We have a major customer in the travel space that we talked about that quite frankly previously had articulated reasons why kind of Couchbase traditional deployments were serving them at the beginning of the year and over the course of a few quarters, new dynamics emerge and they're solving different set of problems and we continue to articulate Capella. And we're over 7 figures of Capella with an account that hadn't planned that for the year.
And so I think that's one example of how fast things can go along with ones that we know about. So Mike, it's simply understanding our customers, working with them on the specifics of their estate, understanding where they are in their development lifestyle cycle with next generation applications, and if there's just much more of that opportunity that's further progressed than has previously been the case.
And that's a separate dynamic from accounts that are up for renewal this year where that renewal base is simply bigger than what we had to work with last year and more balanced. We talked a lot about that dynamic last year, and that often presents one of the most important compelling events where we get an uptick of growth because we're renegotiating agreements on a go forward basis. So I'd say both those factors combined are where you're hearing the conviction come from.

Gregory Henry

Yeah. Mike, I just had echo the same things that look, we're further progressed, we're going to have more shots on goal, if you will, next year. We also have -- now we have several multimillion dollar customers that have migrated as reference customers, which is also helpful. And we've also had a few of our advocates who have embraced Capella at certain customers. They're moving to other organizations.
Sometimes those organizations are already customers of Couchbases and in some cases, they may be new to Couchbase, but they're bringing in the hey, I had a great experience with Couchbase and Capella, and I want to bring that into that organization. So it's all that.

Operator

Terrific. Thank you.

Gregory Henry

Thanks, Mike.

Operator

Raimo Lenschow, Barclays.

Raimo Lenschow

Perfect. Thank you. Congrats from me as well, and Greg, all the best. I wanted to stay on the Capella notion. So at the moment, there's a lot of kind of converting existing customers over to Capella, and that's going to be like a really multi-nice, multi-year opportunity. Where are we on that new customer ad front, because obviously, Capella as a cost solution should enable kind of new local growth to accelerate, why are we there and what are the initiatives for next year?

Gregory Henry

Yeah, hey, Raimo, it's Greg. Thanks for the words, kind words there. Yeah, look, we're continuing to make progress there. We feel very good about it in terms of continuing to add new logos. I think we had a very strong year. Capella continues to be the sort of the dominant new logo engine for the company, but there's obviously a lot of opportunities still out there for us, and the teams are out there, and we've enabled them with things like starter packs and transition packs to get customers going in an easy, lightweight kind of way, and, we're seeing some of that.
That said, it will, it may fluctuate from quarter to quarter, but I think the momentum and particularly the pipeline is good, and we feel good about how that new logo activity is going and you saw overall, again a quarter where we had. I know this isn't just Capella, but we had 44 net new logos, and so we feel like we're starting to get into that rhythm of having a higher amount of regular new logo ads.

Raimo Lenschow

Yeah, perfect. Thank you. And if you think about that, Greg, now when you retiring, it's almost like not nice to ask a question, but like, if you think about the balance between growth and profitability, you kind of showed in Q4 when you go, when to break even that's achievable. Obviously, you give guidance, but how do you -- if the market is recovering next year, how do you think about that growth versus margin balance? Thank you.

Gregory Henry

Yeah, thanks, Raimo, and I do need to correct one thing. I'm actually not retiring. I'm just moving on from Couchbase, but. I'm still far too young for retirement. Look, we're trying to balance that growth and profitability as well as a free cash flow line, but we're still making very good investments on the R&D side to make sure we remain competitive in the market for years to come, particularly on the AI front.
There's been a tremendous amount of dollars energy put towards that because we think that's where the growth is going to come from. And I think that we're going to start seeing that again next year as I was talking with Jason before. The last two prior years were the low 20s. We had a little loss and downsell this year that precluded us from being a 20% grower, but we think we can be back there, and the revenue is going to converge, the growth rate of revenue is going to converge with ARR, and I think we're going to see some really good things on both the growth and rule of 40.

Matthew Cain

Look, Raimo, we're building for the long term here, and I think it's our job quite frankly to find leverage in the model, and we've been talking about the pride of which we're taking in, in demonstrating that that's going to continue on a go forward basis. Greg is right to call out the specific efficiency that we're seeing in R&D, but it spans the other parts of the organization, including go to market, and I think we've had a transformational year in a lot of cases and how we're thinking about go to market with strategic accounts and bowing that, balancing that with growth areas.
We talked about the excitement of our new CMO that joined and the updated positioning and then, if you think about all the work we've done for developers with Capella IQ, the perpetual free tier, AI services, we think that we're going to be acquiring and expanding customers in a much more efficient way. So leverage is a big word that we use around here and I think like most great companies, we're going to figure out how to get that balance right and grow while investing wisely.

Raimo Lenschow

Okay, perfect. Yeah. Makes sense. Thank you. Congrats.

Gregory Henry

Thanks, Raimo.

Operator

Howard Ma, Guggenheim.

Howard Ma

Thanks. Greg, it's been a pleasure and wish you the best on your next opportunity. Matt, I wanted to ask you about the -- in your prepared remarks, you mentioned the global financial services firm that -- I believe that was an enterprise expansion. What I wanted to ask about is, it so seems like that customer consolidated apps built on both relational databases and one or more competing NoSQL databases.
And the question is -- so how, I guess -- number one is how common is this? Number two is how long did this consolidation take from start to finish and are there more deals like this in the pipeline?

Matthew Cain

Hey Howard, I appreciate you calling that out. Look, when I talk about emerging as a strategic platform, that's no small statement. When we stand up in front of our enterprise customers and talk about the utility of our multi-model platform, we are certainly in a position to do things that, quite frankly, other database solutions aren't built for. The combination of operational, analytical, transactional, cloud to edge, we have taken a truly platform approach to how we've architected Couchbase and Capella and we'll continue to do so.
So this has been a big part of our value proposition. I think more and more, we're hearing from enterprises the need to pick fewer winners and drive consolidation as a kind of comprehensive data strategy, it's going to become so imperative in the world of AI, and so with our large accounts, this is a common discussion I would say that the amount of it is probably increasing as we go forward on a relative basis, which I think serves our differentiation very well.
To be able to carve off workloads that were once dependent on relational, do so with unstructured and semi-structured data is a big part of our strategic differentiation, but yeah, to have this level of expansion, Howard, this is hundreds of applications now and into the future. And when we get to these types of arrangements, companies are making a multi-year bet on us as a platform at the expense of others.
And so, this is a spot that is hard to earn and well worth fighting for, but to your question on, are there more out there, without question, and I think, this is a big part of how we're going to execute and continue to grow in a material way on a go forward basis.

Howard Ma

Thanks. That's really encouraging and as a follow up for Greg and sorry to cut you off earlier, Greg. I believe on the Capella side, correct me if I'm wrong, but contracts -- and the question is really around how we should think about Capella bookings versus consumption, and I believe contracts can take kind of two forms because with the migration deal, you have a large on-prem deal migrating, right to the cloud and that deal size should be about [inter] change or it could be bigger, it could be a little small.
But it, it's not going to shrink a lot versus if you start on prem and then that turns into a private marketplace deal, right, that usually grows over time. So what is the, can you help us think about like how what is the right way to think about bookings versus consumption for Capella?

Gregory Henry

Yeah, so I think both of those are actually similar. Anybody who's going from Enterprise to Capella is going to grow. I don't see any customers where they're shrinking, so it is going to grow. And you will see, all of that show up for the most part in ARR immediately, right? So when it gets booked, the ARR will show up because of the way we have defined ARR, which is we take the booking value for the first 12 months, and then from an ARR perspective, after 12 months, it will turn into pure consumption.
The rev rec, however, is pure consumption right out of the gate and which is part of the reason why it's creating this dislocation on the ARR, on the revenue growth rate, which is why we again have tried to keep people focused on the ARR because it's the best near term metric of what's happening in the business and the revenue will come up behind it, which is why I tried to articulate that we think by fiscal '27 you'll start seeing those growth rates sort of come closer, much closer together. Does that answer it for you, Howard?

Howard Ma

I'm sorry to ask another follow up, but, can I do that if this, this way is. Are Capella bookings that the growth rate in bookings and consumption, are those both accelerating?

Gregory Henry

Again, the growth rate of consumption is 100% accelerating. I don't quite honestly focus on bookings as much. I focus on what we're delivering on ARR and what the revenue is going to come behind it from a consumption perspective, but rest assured that the growth of consumption year over year, quarter over quarter continues to grow in Capella.

Operator

Got it. Thank you. That's super helpful.

Gregory Henry

Thank you.

Operator

Rudy Kessinger, D. A. Davidson.

Rudy Kessinger

Hey guys, thanks for taking my questions. Congrats on hitting the ARR for the quarter and Greg, certainly been a pleasure working with you and best of luck on what's next. I'd like to start maybe just on this initial '26 ARR guide. Just curious about the guidance philosophy that went into it as compared to the initial fiscal '25 ARR guide. Just your assumptions around pipeline conversion rates, renewals, expansions, new logos, etc. Is it -- should we think of it as roughly similar to the guidance philosophy used last year or anything more conservative or different?

Gregory Henry

I think it's relatively the same as how we do it, Rudy. We don't sort of alter our guidance philosophy materially unless there's specific known things. And when we're talking about a full year, we look at the renewal pool, our ability to upsell, migration conversions. I think if anything as I mentioned earlier, I think we've seen a step up in migrations the last couple of years as we're continuing to move through, our Capella journey. I think that's one thing that we would expect to happen, a slightly higher migration conversion next year.
But just in terms of overall guidance philosophy, nothing has changed with how we sort of come up with that for the year.

Rudy Kessinger

Okay. And then obviously, as you guys have messaged prior to this and as evident by the Q1 ARR guide, it certainly seems like it's going to be a more balanced year, but could you talk about maybe just a bit more about the linearity that we should expect on ARR kind of one half versus second half or kind of Q1, Q2, Q3 sequentials and whatnot?

Gregory Henry

Yeah, so if you go back to fiscal '23 and 24, we're kind of like 40% first half, 60% second half from an ARR. This past year, as we knew it was going to be more back and loaded, we're more like 30% first half, 60%, 70% second half. I think what you're going to find will probably be somewhere within that range, but more much -- more balanced for the year. That's how to think about it, but it's not 70% in the second half like we did last year.

Rudy Kessinger

Got the top. Okay. Thanks, guys.

Gregory Henry

Thank you, Rudy.

Operator

Miller Jump, Truist Securities.

Miller Jump

Great, thank you for squeezing me in and Greg, best of luck with your next chapter. I think just on the go to market side, maybe just, you've made some comments on recent calls about potentially moving to more of a hunter-farmer type model. Obviously, you've made some comments today about expanding the strategic account program. Just can you talk about maybe the kind of the scale of evolution that we would expect to see and go to market this year and maybe any potential hiring implications on that?

Matthew Cain

Hey, Miller, this is Matt. Look, if we think about the diversity of our business, we're dealing with some of the largest enterprises in the world on the one hand doing as we've noted in a couple of cases, over 10 million ARR. The dynamics of that buying and selling environment, as you can appreciate is very different than a net new Capello logo that we're learning about in the quarter that we're starting with maybe a couple thousand dollarsllar starter pack and getting them on their journey.
And we're constantly learning as an organization on how to best articulate the value of the technology that we're bringing to the market.
What we talked about is investing in a smart way in strategic accounts, because of how big those are and the opportunity that represents and quite frankly, supporting those customers on their data platform journey, and I think we're able to invest differently in kind of the broader part of the funnel where we're seeing more of that kind of buy from perpetual free tier motion complement what we're doing from a from a sell to perspective.
And how we're able to drive leverages, in being smart about the allocation of resources across kind of those different motions. Let's not forget that we're doing business around the world, so we have regional differences in the models that we take into account. And I think fundamentally what we're really excited about is how we're marketing the solution and driving demand with digital spend in an even more efficient and exciting way as people understand our value proposition and how well it's aligned to the market transition that we're seeing.
And so, we take pride in constantly reviewing results and figuring out how to get better. As we move into the fiscal year, we've made (technical difficulty) expense. We feel great about the capacity that we have across the various functions, everything from quota carriers to [SEEs] to cloud specialists, and are often running in the new fiscal year with modifications that we think are going to serve us as we go forward, but we feel so great about changes we've made and the path forward.

Miller Jump

That's great. Color. Thanks. If I could just squeeze in one quick one for Greg, just an update on anything you saw in turn activity in the quarter versus your expectations going in and were implied in guidance.

Gregory Henry

Right in line on lofts and downsell, Miller. Again, I would only call out Q2 of this year, which we previously talked about if anything that was what we view as anomalous, the rest is all in line, and I think we'll keep putting these quarters up and hopefully further demonstrating that Q2 is anomalous because we do have a very strong customer base that is, tends to highly renew with us, so nothing unusual here this quarter.

Miller Jump

Good to hear. Thank you.

Operator

Thank you, and we have reached the end of the question and answer sessions, and I would like to turn the floor back to CEO, Matt Cain for close remarks.

Matthew Cain

Thanks, operator, and thanks to everyone for joining us today. We're thrilled with our Q4 performance and excited with the opportunities in front of us in fiscal 2026. We look forward to speaking with you again next quarter.

Operator

And ladies and gentlemen, this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.