Elastic N.V.

Good afternoon and welcome to the Elastic second quarter fiscal 2020 financial results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Anthony Luskri. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic's second quarter fiscal 2020 financial results. On the call, we have Shai Bannon, founder and chief executive officer, and Janesh Morjani, chief financial officer. Following their prepared remarks, we will take questions. Our press release was issued after the close of market and is posted on our website where this call is being simultaneously webcast. Slides which accompany this webcast can be viewed in conjunction with live remarks and can also be downloaded at the conclusion of the webcast on the Elastic Investor Relations website, ir.elastic.co. On this call today, our discussion may include predictions, estimates, or other information that might be considered forward-looking statements within the safe harbor provisions of the U.S. federal securities laws. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include those set forth in the press release that we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission, including our Forms 10-K, 10-Q, and 8-K, and other filings we make with the SEC from time to time. Your caution not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not assuming an obligation to revise or publicly release the results or any revision of these forward-looking statements in light of new information or future events unless required by law. In addition, during today's call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from GAAP measures. Our non-GAAP measures exclude the effect on our GAAP results of stock-based compensation, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, acquisition-related expenses, and non-GAAP tax rate adjustments. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in the press release and on our investor relations website, the slides accompanying this webcast. The webcast replay on this call and slides will be available for two months on our company website under the investor relations link. With that, I'll turn it over to Shai.

Thank you, Anthony. Hello, everyone, and welcome to the call. It's great to be here and share the results of our second fiscal quarter. In Q2, revenue grew 63% year-over-year on a constant currency basis. We had more than 9,700 subscription customers at the end of the quarter, which included over 525 with annual contract value of more than $100,000, and our net expansion rates continues to be over 130%. Before Janesh covers our financial performance, I'd like to talk about some highlights in the quarter, and there is no better place to start than with security. In Q2, we completed our acquisition of endpoint security company, Endgame. We also announced our new product, Elastic Endpoint Security. This product integrates what we consider to be the best endpoint protection from Endgame with the best search technology stack from Elastic for a new breed of threat prevention, detection, and response. Its package is a single autonomous agent that's easy to use and built for speed and scale. It's also one of the only products on the market designed for hybrid environments, from Starbucks to submarines, as the team likes to say, so you're protected even if you're not cloud-connected. Elastic Endpoint Security is available today under the Elastic license as part of our enterprise subscription. It's been validated by many, and recently excelled at third-party tests from AV Comparatives. It's also tightly integrated with our free Elasticseam product, which is also under the Elastic license. Additionally, we announced the end of peer endpoint pricing. This aligns with our overall pricing and packaging model, which is a unique model we've had since our company's founding. No pricing per host, per agent, per seat, or data ingested. Just pay for the resources you use. We've invested in this approach because it promotes growth with flexibility, not friction. Our customers aren't constrained by their success as they ingest more data. Instead, our model is aligned with the value our customers get from our products, and we build trust with our customers as we continue to engineer features that help them be most efficient with the resources they have. This message has really resonated with our community. At our Washington DC Elastic On Tour event, Nate Fick, former Endgame CEO, and I heard from many CIOs and CISOs who were excited by this. They're often used to vendors asking them to pay more without getting more value in the process. At Elastic, we focus on providing more value to customers with fast, easy to use, scalable technology that allows customers to grow with us. For example, Texas A&M University is a security customer of ours that came via the acquisition of Endgame. The speed and scalability of Elastic Endpoint Security has allowed them to drop their mean time to threat remediation from seven days to 30 minutes. To them, the combination of Endgame's endpoint technology with the capabilities of the Elastic Stack is a compelling way to simplify and automate their security operations. We see similar benefits coming to our customers as they harness the ability to stop threats with Elastic Endpoint Security while pairing security event data with Elastic Machine Learning Power anomaly detection. Another example is multinational financial services firm Barclays. They've been a customer of ours for years and powered their enterprise search and observability use cases with Elastic. More recently, they've explored utilizing Elastic Security to enhance their security estate. To further accelerate our efforts in the security space, we formed the Elastic Security Team, which combines our Elastic SIM and Elastic Endpoint Security engineering work. Nate will lead this effort as the general manager, and I have great confidence in how he will lead and guide the team. The combination of our security efforts is similar to our approach with observability, which includes logging, metrics, APM, and uptime monitoring. We develop these products in concert on top of Elasticsearch and Kibana. We build on top of a single technical foundation, and this gives us a strategic advantage in the market. Many of our peers couple together multiple products built with different architectures or underlying foundations. A single UI can give the appearance of cohesiveness, but this doesn't go far enough. There are underlying technical complexities that come with gluing together various architectures and implementation. Building on one foundation, as we've done at Elastic, gives our users a more integrated experience. For example, the machine learning jobs you run on your log data are the same ones that you run on your APM or security data. Another example is Kibana Lens, a new feature we've previewed in our 7.5 release. Lens is available under the Elastic license and introduces a drag-and-drop experience for building out Kibana visualizations for any kind of data, logs, metrics, security events, and more. I'm very excited about this because it's a powerful step forward on our journey to further simplify the user experience in Kibana and broaden its applicability to even more users. While I touched on this earlier, it's worth repeating. A single technology foundation simplifies pricing as well. This is true in the context of eliminating the need to calculate pricing across hosts or seats or ingest volumes or whatever other variable. But say a customer wanted to take a single application and break it into 10 microservices, or a single host and break it into hundreds of containers. Why make them pay 10 or even 100 times more? Take cloud content management company Box, for example. They are integrated into the workflows of millions of customers and have to deliver on strict SLAs to maintain stability, performance, and compliance. To them, every log line counts, and they chose Elastic because we make it easier to better manage costs and increase visibility into their logs. To add to the benefits of frictionless pricing and an integrated product experience, building on one foundation is also more efficient for us as a business. There's an economy of scale aspect to it. If we make one part of our stack faster or more secure, the entire stack and all use cases benefit from that. It also lets us push more value to our users faster and more efficiently. We've been leading the charge in the observability space long before it was even called observability. We saw massive adoption of our products for logging and metrics. So we bought an APM company almost three years ago that is engineered on the same technology foundation. This move immediately added value to many, many customers using Elastic for logging and metrics use cases. It's also why we joined forces with Endgame. Because while you observe your infrastructure, why not protect it? This message is compelling at many levels. I was at our New York Elasticon Tour event recently and hosted a customer dinner with CIOs and senior executives from several Fortune 500 companies. And our vision for the interaction between the observability and security spaces through a single, cohesive technology stack really resonated with them. Their reaction is representative of what we will continue to see across our community. It's common for customers to initially adopt us for one use case. For example, in Q2, we closed new business to power the Zelle payment network. Billions of dollars over millions of transactions are moved each quarter via the service, and network uptime is critical. They replaced their previous solution with Elastic to address challenges with scaling and speed. Now they can search across large volumes of system logs to diagnose and resolve potential issues quickly. But there's more value readily available to customers like them, including APM, endpoint security, and more. And that's because of how we've engineered our products, pricing, packaging, and business. This is a powerful story to be able to tell. all within a single stack. We also continue to make strides with our cloud business this quarter. We have a presence on AWS, GCP, Alibaba, Tencent, and recently launched our Elasticsearch service on Microsoft Azure. Now it's easier than ever for customers who prefer to run their workloads on Azure to get value from our products in the cloud. One such customer is a Fortune 500 manufacturing company. They closed new business with us in the quarter for their logging and SIEM use cases. They had evaluated other solutions like Splunk but wanted to be able to explore their logs and events in a flexible way. So they tried our free and basic offerings and they're now an Elasticsearch service customer running on Microsoft Azure, their preferred cloud provider. Audi Business Innovation Group is another customer who closed new SaaS business with us this quarter. They have been using our Elasticsearch service for logging for some time, and they've now expanded to an enterprise search use case, allowing development team at VW Group to boost their productivity and efficiency. We also expanded our footprint with Google Cloud Platform. First, we announced our availability on Google Cloud Marketplace. This makes it even easier for customers to get our Elasticsearch service on GCP by simplifying procurement and consolidating billing through their GCP account. We also announced availability on new GCP regions, including Sydney, London, and Northern Virginia. More broadly, we made it even easier for customers to efficiently store more data, up to 60% more, in fact, in our Elasticsearch service. This was made possible by Elastic License features we've released over the last year or so. So things like hot-warm deployment templates, index lifecycle management, snapshot management, and data roll-ups. This gives customers the ability to store millions of additional log messages, APM transactions, server metrics, audit trails, and even endpoint data while continuing to grow with us over time. In the Enterprise Search space, we continued to close new business. I met with one of the five largest banks in the United States a few weeks back about their Elastic use case. They closed new business with us in the quarter for a few projects, one of which is Enterprise Search, managed through our Elastic Cloud Enterprise product. They're also building out real-time tracking of electronic payments and customer account records history by quickly searching and analyzing billions of documents and transactions. Earlier this year, I mentioned how excited I am about our enterprise search efforts. Elastic Enterprise Search unifies enterprise data and documents through an easy-to-consume search experience. The team shipped another fantastic preview release in the quarter. We added new connectors for data sources like Zendesk, GitHub Enterprise, Office 365, and ServiceNow. We also introduced document content extraction. This is a powerful feature that makes it easy to find information on the fifth slide of a PowerPoint deck stored on Dropbox or on page 78 of a sales proposal worked on last week in Google Docs. We also introduced document-level permissions of custom sources. This type of security means an engineer only gets the results they have access to, and a financial analyst gets access to a different set of results. It just depends on the document permissions. As we like to say, even our minor releases feel like majors, and this release was no different. Looking back on the quarter, I am humbled by the tremendous work of the team and the results that have come out of it. We continue to execute on a vision and strategy that we believe is setting our company and customers up for the long run. We're differentiated through our investment in commercial IP, staying true to the value we provide our customers via our products and unified frictionless pricing model, and continuing to be where our users are so that we can grow together. The bottom line is that we believe the value is in data, and search is the best way to get that value. And by building on one technology stack that can house all of your data, we make it easy, efficient, and scalable to search, analyze, and understand your data through multiple lenses. It's incredibly powerful when you can bring all the pieces of the same story that you might want to tell into one place. We make that possible. That's all from me. I'll now hand it over to Ginesh.