Elastic N.V.

Good afternoon and welcome to the Elastic First Quarter Fiscal 2021 Earnings Conference Call. All participants will be in a 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 telephone keypad. 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, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic's first quarter fiscal 2021 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 today after the close of market and is posted on our website. 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 Industrial Relations website, ir.elastic.co. Our discussion will include forward-looking statements, which may include predictions, estimates, our expectations regarding the impact of the COVID-19 pandemic, and other information. These forward-looking statements are based on factors currently known to us, speak only as of the date of this call, and are subject to risks and uncertainties that could cause actual results to differ materially. We disclaim any obligation to update or revise these forward-looking statements. Please refer to the risks and uncertainties included in the press release that we issued earlier today and those more fully described in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures. Disclosures regarding these non-GAAP measures, including reconciliations with the most comparable GAAP measures, can be found in the press release and slides. The webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link. Our second quarter fiscal 2021 quiet period begins at the close of business Friday, October 16, 2020. We'd also like to inform you that we will be virtually participating in the Citi 2020 Global Technology Conference on September 9th and the Jefferies 2020 Software Conference on September 14th. Also, we are finalizing the details of our inaugural virtual analyst meeting on October 14th, and you can expect more specifics in the next few weeks. With that, I'll turn it over to Shai.

Thank you, Anthony. I'm happy to be here with all of you today. I'd like to share some highlights from our Q1 results with you. Before I do, I want to say that I hope everyone is staying safe and healthy during these uncertain times. I am proud to report that we started the new fiscal year off strong, maintaining resilience despite COVID-19, and we believe we are well positioned for the future. In Q1, revenue grew 44% year over year. We ended the quarter with more than 12,100 subscription customers, including over 630 with ACV of more than $100,000. And we maintained our net expansion rate of over 130%. I'd like to thank our community of customers, partners, users, and employees who made this possible. During the quarter, as we anticipated, there were some headwinds and some tailwinds. The headwinds were COVID disruptions, softness in sectors such as hospitality and transportation, and some customers taking longer to review transactions, resulting in slightly longer sales cycles. Despite this, our sales team continues to deliver for our customers and our business. We also experienced some tailwinds due to COVID, from the changes to the overall business environment and spending priorities, as well as increased demand across some sectors. For example, a U.S. online marketplace for beverage delivery operating across 60 markets, adopted Elastic Cloud to power their application search. Our ease of use and scalability allowed them to reduce operational costs and meet double the demand from their customers. Our solutions are also aligned with customer priorities in this environment. For example, increased online interactions place greater load on mission-critical systems. which increased the need for observability. The U.S. healthcare industry has seen an over 30 times increase in telehealth appointments compared to pre-COVID appointments. As such, one of our customers, a leading managed healthcare customer, has seen video appointment volume grow from an average of 700 to 20,000 per day. For them, app time matters. An hour-long outage impacts significantly more patients than it did pre-COVID, and our observability solution for log, metric, and APM data helps keep those systems online. As businesses shift towards more virtual work, the need to protect against new and ever-evolving cyber threats increases. For example, we expanded business with one of the largest global beverage companies to provide endpoint protection for virtual employees. This added to their existing observability use case and established Elastic as a new standard over point solution incumbents. Looking ahead, we remain focused on investing in our solution for enterprise search, observability, and security. We believe our single unified technology stack gives us an advantage. It's easier and more efficient for us to add a differentiated and proprietary value to our staff that further widens our competitive moat. Customers can more easily extend to multiple use cases, which drive expansion. And a unified staff also makes it easier for us to provide a unified pricing model. This, combined with our powerful distribution model and the ability to deploy on Elastic Cloud, gives customers maximum flexibility and efficiency. If you think about all of this together, it also allows us to move up in the enterprise while maintaining strong relationship with our user base. In Q1, the team executed well on this strategy across the three core solutions of our business. I'd like to share some of the highlights with you. First, our enterprise search solution. which addresses workplace, application, and site search. It's an easy-to-use, easy-to-scale offering with high connectivity and scalability. And it's underpinned by our unified and flexible pricing that allows customers to pay for what they use. In this quarter, we release Workplace Search on Elastic Cloud, which joins the paid self-managed offering we launched in May. In addition, As I mentioned on the last call, we plan to introduce some features of our self-managed workplace search offering on our free distribution tier. We've done that now, aligning with our other solutions, which also have a free proprietary self-managed distribution tier via our basic subscription. These feeds are go-to market motion by offering a compelling feature set, that's accessible to anyone and drives broader adoption by dramatically lowering the barrier to entry. Customers can also upgrade to our paid offerings, where they benefit from high-value, enterprise-grade features, such as single sign-on and granular document-level security controls. If you look at all we've released for Enterprise Search in calendar year 2020 alone, App Search on Elastic Cloud general availability of workplace search, followed by its availability on Elastic Cloud and the free tier, the pace of execution has been tremendous. The team just keeps on building more and more value into this solution, and we've seen this resonate with our customers in Q1. For example, a major U.S. provider of high-speed satellite broadband services adopted workplace search to power their new company-wide enterprise search experience. Additionally, one of the big three U.S. automakers renewed with us to power internal and public-facing application search. And the government for one of the largest U.S. cities uses Elastic to easily search through its databases to derive insights for government-wide initiatives. Next is our observability solution, which unifies log, metric, and APM data analysis in our single, easy-to-use technology stack. Bringing this kind of analysis into one place, one UI, is particularly powerful. It eliminates data silos, reduces resolution time, and gives customers complete visibility without breaking the bank. Our customers continue to find this compelling. For example, a leading German automaker expanded business with us in Q1. They ingest and store terabytes of vehicle logs and metrics from 100-plus microservices like the heads-up display or in-car entertainment systems into Elastic. Their developers use it to quickly fix issues and increase performance to maintain customer satisfaction with these services. Our unified pricing and differentiated features were key drivers for this customer continuing to invest in our products. Another automaker, Audi, spoke at one of our virtual events in the quarter about how they run observability workloads on Elastic Cloud. Audi shared how Elastic helps them deliver against their business objectives of providing a service that's easy to use and decreases operational costs. Additionally, a top 10 global logistic provider of supply chain solutions renewed business with us in Q1. They have had significant savings because of Elastic's ability to help them observe their application and avoid gaps in service. In the quarter, we continue to invest in features that add broader visibility with more integration. We enhanced the analyst experience with new at-a-glance views. We also invested in our highly requested APM capabilities with a better version of machine learning jobs that pair with our APM service maps. It's now easier than ever to automatically surface when service health is degrading so operators can address issues faster. The development I'm most excited about is the better release of our proprietary unified agent, which enables one-click data onboarding for log, metric, and endpoint security data. We are delivering a magical experience for our users. I like to say that it's the one agent to rule them all. This is a massive movement towards our vision of radically simplifying data onboarding and ingest management. This release enhances ease of use and decreases time to value for operators. It also enables customers to up-level their usage and expand to new use cases. This is because anywhere this agent is running to collect observability data, a customer can also install endpoint security. This illustrates the power play we have of building on a single stack. Build it once, use it everywhere. We're making it easier to capture all your data with a single agent, whether a customer is running on-premises or in the cloud. Because while you observe, why not protect? This leads me to our security solution. It unifies endpoint protection and SIEM into a single experience that's fast and scalable. And it just got even better with our unified agents. This is a significant step in our security journey. If you rewind to this time last year, we had not yet joined forces with Endgame. Today, we've successfully taken a significant piece of the Endgame product and folded it into our stack ahead of schedule. This quarter's better release includes malware prevention as part of the Elastic Stack, which is available through our free distribution tier. More protections are on the way and will be available through both of our free and paid subscription tiers. I'm very proud of what the team has accomplished, and we continue to work towards full integration. And we haven't lost a beat in releasing even more features. We released a better version of out-of-the-box detection rules. new case management capabilities with an IBM security resilient integration, and expanded cloud monitoring for AWS CloudTrail and Okta to detect issues with cloud environment and user activity. When you bring it all together, our security solution eliminates blind spots, simplifies workflows, and drives more action to help protect organizations and their data. In Q1, customers across industries continued to see the value of our unified solution approach. A U.S.-based global financial services company closed new business with us to address observability and security use cases. They chose Elastic over other incumbents because of our flexible pricing. Additionally, one of the largest global system integrators committed to build a managed security practice on top of Elastic. Although it is still early days for this relationship, this win further strengthens our ties with a global strategic partner that can provide Elastic the opportunity to present our value to C-level audiences around the world. We also saw continued traction in the public sector with the Defense Information System Agency. where our security solution and services are empowering security analysts to discover and mitigate cyber threats quickly. Now to our cloud business. We continue to invest where our customers wish to run, on the cloud, on-prem, or in hybrid environments. We make deploying and scaling our solutions while minimizing operational costs Easy with Elastic Cloud, which is available on AWS, Google Cloud, Microsoft Azure, Alibaba, and Tencent. The ease of deployment, scaling, and reduction in operational costs remain a priority for customers. For example, Etsy, who spoke at one of our virtual events in Q1, runs their observability workloads on Elastic Cloud on Google Cloud. In addition to reducing time spent on infrastructure management, our ease of use was a deciding factor for them and has played a role in helping them scale to meet greater online engagement this year. There is a similar story for developer software company JFrog, who closed new business with us in Q1. They chose Elastic over other incumbent security solutions because our unified pricing and Elastic Cloud scalability and ease helped them save time and streamline costs. We continued to innovate on our cloud offering in Q1. We broadened our reach with new regions, adding AWS regions in Canada, Paris, and Seoul. We also announced our FedRAMP moderate authorization, in addition to the general availability on AWS GovCloud, positioning us to better support U.S. federal government customers and further capture the large opportunities available in this space. And we delivered two highly requested proprietary features for ElastiCloud, integration with AWS PrivateLink and IP filtering. Together, They give customers greater control over the network security layer of their Elastic Cloud workloads. Finally, as we scale our business for the future, I'm pleased to welcome Paul Appleby to Elastic as President, Worldwide Field Operations. Paul is an industry veteran with more than 20 years of experience successfully building and leading global teams and scaling companies. He joined Elastic most recently from Kinetica, where he served as CEO. And prior to that, he was the President of Worldwide Sales and Marketing for BMC. He has held senior leadership roles with Salesforce, Sybil Systems, C3AI, Travelex, and SAP. I am excited about Paul joining the team as we address the large market opportunity ahead of us. I'd like to also thank Justin Hoffman, for his continuing contributions and leadership. Looking back on the quarter, I am amazed at all that the team delivered and our customers accomplished. It gives me confidence in our ability as a company and community to navigate the current environment. We continue to balance doing the right things for the near term while planning for the long term. Our ability to do so is underpinned by remaining focused on fueling rapid adoption and innovation with our free and open distribution model and our continued momentum in the cloud. Leveraging our proprietary features to widen our competitive mode to drive monetization, continued innovation that delivers customer value and drives customer retention. And our unified pricing model to help customers grow with flexibility not friction. I am excited about the future of our three solutions on a single extensible stack that can be deployed anywhere. Janesh, over to you.