Elastic N.V.

Good afternoon and welcome to the Elastic Third Quarter Fiscal 2021 Earnings 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 telephone keypad. To withdraw your questions, 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, Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic's third 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 Investor 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 risk and uncertainties that could cause actual results to differ materially. We disclaim any obligation to update or revise these forward-looking statements unless required by law. Please refer to the risks and uncertainties included in the press release that we issued earlier today and included it in the slides accompanying this webcast 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 fourth quarter fiscal 2021 quiet period begins at the close of business Friday, April 16, 2021. We'd also like to inform you that we would be participating in the Truist Securities Technology Internet and Services Conference on March 10th and the Barenberg Cybersecurity and DevOps Conference on March 12th. With that, I'll turn it over to Shai.

Thank you, Anthony. I'm happy to share some highlights from Q3 with you today. It has been a busy start to the year, and I am very proud of everything that we've accomplished this quarter. I am truly humbled to see the rapid innovation of our solutions. growth in our cloud business and our different customer relationship as we scale our go-to market strategy the continued optimism and resilience of our employees customers partners and community during this trying time are truly an inspiration we had a great quarter and once again we showed strong execution against an ongoing mixed demand environment in q3 Revenue grew 39% year over year, and we saw continued, robust customer acquisition and expansion metrics. We ended the quarter with more than 13,800 subscription customers, including over 670 with an annual contract value of more than $100,000. I'm proud of the team and the results and innovations we delivered in Q3. Now, I'd like to share more about those innovations with you. At Elastic, every minor release has a major impact. We aim to consistently launch new features every 8 to 10 weeks. Our strategy is to build three powerful solutions, enterprise search, observability, and security, into a single technology stack. This enables our customers to easily deploy any solution as the needs of their businesses evolve. We recently announced a change to our licensing models. moving our Apache 2 license source code in Elasticsearch and Kibana to be dual licensed under the Elastic License v2 and the server-side public license, giving users the choice of which license to apply. We also simplified the Elastic License and made it substantially more permissive, keeping to our principles of openness, transparency, and collaboration. Since introducing the Elastic License three years ago, We've continued to widen our feature differentiation and have built a strong competitive mode as we've expanded our proprietary feature sets. Our strong track record of execution, particularly on revenue growth in Elastic Cloud over the past several quarters, proves that our growth strategy is working well. This latest update further protects our continued investments and extends our competitive differentiations. It ensures our community and customers have free and open access to use, modify, redistribute, and collaborate on the code, while restricting cloud service providers from offering Elasticsearch and Kibana as a service without contributing back. I am excited about the future of our products and solutions and confident that we'll continue our fast pace of development and innovation across the Elasticsearch staff. Two of my favorite examples of this innovation come from our recent announcements of the general availability of searchable snapshots and the beta of schema on read. Both new features transform what our customers can do with the power of the elastic stack. Searchable snapshots is a paid enterprise-level feature that lets customers retain and search more data. This is a game-changing enhancement that lets customers decouple compute from storage and extract the most value from their data at optimal costs. We will be using searchable snapshots to power two new first-class data tiers. The cold data tier, now generally available, helps customers significantly reduce storage costs with modest impact on performance. The frozen tier, currently in development, will take this a step further, making data stored exclusively in low-cost object stores fully searchable. These new capabilities make it easier and more cost effective for customers to manage growing data volumes in Elastic while meeting data retention requirements. We are already starting to see interest from customers. SAP Concur recently expressed excitement for searchable snapshots, stating that having the ability to search data stored in S3 expands their options, allowing them to potentially reduce the total cost of service. We believe this opens the door for more usage of Elastic across the company. Blazing fast performance is what Elastic is known for, but our customers have told us that sometimes they want to trade some of that speed for added flexibility. We've addressed this with the recent launch of the beta of Schema on Read, which allows customers to create data structures on the fly. Customers can now choose between the flexibility of Schema on Read or the blazing speed of Schema on Write all in one stack. The innovations in speed and flexibility that we are delivering are translating into benefits for our customers. For example, we also closed business this quarter with a leading digital workflow company who is using Elastic to power AIOps capabilities that gives customers deeper insights into their digital operations. They're taking advantage of the speed of Elastic to analyze root cause intelligence, automate remediation tasks, and reduce the number of level one incidents. Elastic cross-cluster replication is also being leveraged to keep all global data in sync for this service. Now onto our enterprise search solution, which powers search across websites, applications, and workplaces. It's easy to use, easy to scale, and easy to connect. It helps increase productivity and improve customer engagement. We're creating a consumer-like experience built for the enterprise. I'm thrilled that customers are responding so positively to Elastic Workplace Search, our one-stop answer shop for the virtual workplace. For example, this quarter we closed business with a global cloud communication platform company. They needed to increase sales team productivity through self-service content discovery. Because their teams are now fully remote and employees can't tap a co-worker on the shoulder, the company wanted to ensure they have access to information needed to do their job. They've chosen Workplace Search to help their sales reps serve customers more effectively and reduce the time it takes their technical team to answer product-related questions. We remain highly focused on creating simple, beautiful search experiences for our users. We deepened our portfolio of content sources for workplace search, adding box to a growing list of out-of-the-box connectors. We also invested in the beta of a new web crawler for Elastic App Search, giving users a simple yet powerful way to make web content instantly searchable on their websites. This update is an important milestone in simplifying the lives of our users and enabling new use cases for enterprise customers. Now on to our observability solution, which unifies log, metric, and APM data analysis into one place. It's easy to use, eliminates data silos, and lowers mean time to resolution. We continue to see customers rapidly adopt our observability solution this quarter. A great example of this is a Fortune 50 US telecommunication and media company that renewed business with us this quarter. They originally came to us because they needed a way to get actionable insights from data that existed across multiple silos and different solutions. With Elastic, they are able to monitor the reliability of their video-on-demand service from their data center to the consumer box and back, all in one place. They are replacing their previous login solution with Elastic, combining a diverse set of projects into a single center of excellence, powering next-generation observability across the company. As companies move more of their business functions online, the ability to monitor real-time activity is mission critical. Our new service health view in Elastic APM addresses this need and summarizes all of the information about the health of a service in one place. making it easier for customers to troubleshoot issues. With this expanded visibility into Service Health, customers are realizing that they can do more with our observability solution. One of the world's top 10 software companies by revenue, for example, started using Elastic for a small login cluster and has since expanded their business with us to capture four times the data. Now, they've added APM Traces to build out a single view of their environment, and they can resolve issues more quickly and get deeper insights into their systems. In addition, our new searchable snapshots capability help keep observability data from logs to metrics to traces online and searchable for longer. Our customers told us they love that they can store 90 or 120 days of data and get millisecond-level responses. but they also want to be able to store years of data in an efficient way. We delivered on that request with searchable snapshots. Now customers can store years worth of data and easily query it as needed to gain actionable insights without breaking the bank. Moving on to our security solution, which unifies endpoint protection and SIM into a single experience that's fast and scalable. We continue to gain traction with large global enterprises looking to partner with Elastic thanks to our unified approach to security. In Q3, we closed business with a German multinational engineering and technology company who is building out their global security strategy. They turned to Elastic to provide best-in-class protections for more than 425,000 endpoints. The company already leverages our enterprise search and observability solutions. They've further expanded their relationship with us to include our end-to-end security solution. This is another example of how our customers can easily expand into multiple use cases with the power of our three solutions built into a single technology stack. We continue to invest in our security solution to help customers eliminate blind spots, stop threats at scale, and arm every analyst. We recently launched pre-built machine learning jobs and detection rules supporting MITRE sub-techniques to operationalize analytics and provide a deeper understanding of how attacks are unfolding within an organization. We also close business with a European law enforcement agency looking to gain full visibility inside and speed to act within their infrastructure. The agency chose Elastic because they see the value in investing in a single platform for observability and security while managing total cost of ownership. They are deploying Elastic Security as a full-featured SIN and endpoint protection solution on more than 35,000 devices. Because while you observe, why not protect? I'm excited to see how our unified technology stack and resource-based pricing model are helping customers expand to multiple use cases and do more with their data. The innovation in our stack translates into direct benefits for security teams. With searchable snapshots, teams can benefit from direct access to years of high-volume data with significant cost savings. This supports use cases across all of security operations, from compliance to SIEM to threat hunting and more. Extended retention of security data ensures that even when facing extremely long dwell times, practitioners have the data they need. Now on to our cloud business. We make it easy to deploy and scale our solutions with Elastic Cloud, which is available on Microsoft Azure, Google Cloud, AWS, Alibaba, and Tencent. Our ease of use and simplified management make Elastic Cloud a clear choice for customers. We've also added some incredibly powerful features to Elastic Cloud. Notably, the ability to easily replicate and search across cloud providers and regions. Imagine you're running multiple Elastic deployments around the world on Azure, Google Cloud, or AWS. Data has gravity, and customers want to keep their data where it originates. Now, they can break down silos by accessing, connecting, and even replicating their global data using Elastic in multi-cloud and multi-region environments without being logged into a single vendor. And of course, our innovations in the Elastic Stack are bringing powerful enhancements to Elastic Cloud. An easy-to-use cold-tier slider in Elastic Cloud, powered by searchable snapshots, make it easy for customers to return more data for longer at the same cost. As we continue to scale our business, we welcome Ash Kulkarni as Chief Product Officer. Ash has more than 20 years of experience in enterprise software and has led product and engineering teams at leading companies, including McAfee, Akamai, and Informatica. I am excited to be working alongside Ash as we continue to bring the power of search to our community and customers and expand our Elastic Cloud presence globally. At Elastic, community is more than just code. I'm excited to share that in two days, we'll be hosting our first ever global Elastic Community Conference. a virtual event filled with insightful technical content delivered by our community members and Elastic employees. And I was thrilled to see that Elastic employees raised more than $400,000 on Giving Tuesday as part of our Elastic Cares initiative. I am excited about where the team is headed and what's to come as we move into the final quarter of our fiscal year.