Elastic N.V.

Good day and welcome to the Elastic First Quarter Fiscal 2023 Earnings Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Nikolai Belion, 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 2023 financial results. On the call, we have Ash Kulkarni, Chief Executive Officer, and Janesh Murjani, Chief Financial Officer and Chief Operating Officer. Following the 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 demand for our products and solutions, and our future revenue 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 unless required by law. Please refer to the risks and uncertainties included in the press release that we issued earlier today, included 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 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. We will be participating in the Citi Global Technology Conference on September 8th and the Goldman Sachs Cominacopia Technology Conference on September 13th. Elastic will host its 2022 Financial Analyst Day of September 19 and hope many of you will join us in person in San Francisco. Our second quarter fiscal 2023 quiet period begins at the close of business Friday, October 14, 2022. With that, I will turn it over to Ash.

Thank you, Nikolai. Hello and welcome, everyone. I'm happy to be here with you today to share our Q1 FY23 results. I'm very pleased with our execution in Q1 as we continued to see strength in the demand environment and drove disciplined execution across the board. An excellent start to our fiscal year. In Q1, revenue grew 30% year-over-year and 34% year-over-year in constant currency. And we once again saw robust momentum in Elastic Cloud. Cloud revenue grew 59% year over year, or 62% in constant currency, and comprised 39% of our total revenue, compared to 32% in the prior year quarter. We ended the quarter with more than 19,300 subscription customers, including over 1,010 with annual contract values of more than $100,000, and our net expansion rate was just under 130%. Our results in Q1 reflect our focus on our strategy and the consistent execution of our team. As data continues to grow in volume and importance, we believe that Elastic's data analytics platform, powered by Search, will continue to be essential to our customers' continued success. We saw this play out in the form of strong demand patterns throughout the quarter with good linearity. I also heard this in customer conversations throughout the quarter. Even with the strengthening U.S. dollar, we saw execution strength across geographies with each of our geographies delivering order growth adjusted for currency and duration in excess of 40% year-over-year. All this gives us the confidence to raise our constant currency revenue growth guidance for the year. We also feel well positioned to achieve our long-term goals of cloud exceeding 50% of total revenue by the fourth quarter of fiscal 24 and achieving $2 billion in total revenue in fiscal 25. Let me share our progress across our three key focus areas. driving durable growth widening the competitive moat and fueling profitable growth starting with durable growth we believe the need for our customers to protect observe and search data is mission critical and we continue to see customer spend stay resilient and maintain steady growth we believe The level and pace of consumption across our solutions remain strong because customers recognize the power of our data analytics platform and continue to expand usage across our solutions. For example, a US regional bank company is leveraging our security solution on Elastic Cloud for our SIM and security monitoring capabilities. This quarter, They expanded business with us, and we closed a new observability deal with them so they can leverage Elastic to meet their application log monitoring needs, ensuring all of the bank's critical compliance requirements are met. Additionally, we renewed business with GitLab Inc., which is leveraging Elastic to run their SaaS service search functionality and managing all of their data logging infrastructure on Elastic Cloud. Last quarter, I shared details about our focus on the cloud, which continues to drive results. In Q1, the field drove a significant increase in Elastic Cloud pipeline creation over Q4, and a substantial portion of Elastic Cloud deals closed by the field in Q1 came from new logos. Of note, we are seeing that our enterprise subscription tier is now the fastest growing tier amongst our cloud customers. We continue to build momentum with the major hyperscalers, AWS, Microsoft Azure, and Google Cloud. The marketplaces are an important growth driver of Elastic Cloud and our fastest growing route to market. In fact, our tight integration across the marketplaces And our go-to-market investments with these partners once again resulted in revenue growth of over 100% year-over-year from the cloud marketplaces. And I'm excited to share that we were recognized as a finalist for the 2022 Microsoft Commercial Marketplace Partner of the Year Award. Now, on to our widening competitive mode. I am incredibly proud of what the team delivered this quarter as we launched new enhancements for Elastic Cloud that make it easy for our customers to search data anywhere from one platform. With new updates to our cross-cluster search and cross-cluster replication capabilities, customers benefit from interoperability between self-managed and Elastic Cloud deployments. These capabilities support our customers in their transition to the cloud, providing a seamless way to search across hybrid environments. This is particularly important for two categories of customers, those who may need to maintain data in their own data centers due to regulatory or privacy constraints, and those who are in the process of migrating from private to public cloud and need an approach to migrating data over time. With these new capabilities, in addition to the multi-cloud cross-cluster search and replication capabilities that we have already had, these customers can now seamlessly search or migrate data across private, hybrid, and public clouds. This accelerates the migration of customer data to the public cloud, and we believe grows the footprint of Elastic to be wherever customer data lives, further widening our competitive mode. Moving on to our solutions, starting with Elastic Security. The strength of our security capabilities continues to fuel our success in the market. This quarter, we expanded business with the leading data streaming platform company who is leveraging our SIM to ensure deeper security intelligence. And with the new cross-cluster search enhancements I mentioned earlier, they can easily search across hybrid environments to identify relevant security data in any environment. They're also using searchable snapshots, which enables them to meet their internal data retention goals as they look to cost-effectively store and easily search years' worth of data. One of the major drivers to choosing Elastic's enterprise-level subscription. In security, we continued our pace of innovation. Just this week, we introduced Elastic's modern approach to SOAR, or Security Orchestration, Automation, and Response. This new capability allows our SIEM users to streamline their operations workflows, speed up threat hunting, and reduce mean time to respond. Elastic's approach to SOAR is powered by Elastic Agent, Our single-click approach to integrating data from hundreds of data sources while delivering endpoint and cloud security. It includes expanded native remediation capabilities through Elastic Agent, a purpose-built user experience for remediation and orchestration, and expanded third-party SOAR vendor integrations. our cloud security offering at RSA in June, which featured capabilities to secure modern Kubernetes environments and cloud workloads. Reception to the announcement has been strong, and we expect the full product GA by the end of calendar year 2022, leading to enhanced opportunities to cross-sell within our security products. Now moving on to Elastic Observability. Our success in evolving log analytics use cases to larger, more holistic observability implementations continues as customers look to Elastic to monitor their entire ecosystem. This quarter, a large global electronics manufacturer expanded business with us as they leverage our observability solution to monitor and investigate errors across IoT applications that power their connected appliance offering. With Elastic, they are able to enhance their connected consumer appliance products to ensure customers have a world-class user experience. This quarter, we also closed a new deal with O2 Telefonica in Germany. They are using our observability solution on Elastic Cloud across all three cloud hyperscalers. As the company targets a radical IT transformation for the upcoming years, O2 Telefonica is relying on Elastic to support observability to further improve customer satisfaction by increased service availability and performance. On the product front, we just announced new updates providing smarter alert management for AIOps that accelerate problem resolution. AIOps-driven alert and incident management are crucial for proactively detecting, triaging, investigating, and resolving anomalies in complex business environments. Customers like SAP, Jaguar Land Rover, and ING rely on elastic observability to deliver unified visibility and actionable insights about critical business infrastructure. We also recently launched the beta of Synthetix Monitoring, a capability often requested by APM customers. We've seen excellent adoption of this new capability. Since the launch, more than 240 Elastic Observability customers on Elastic Cloud have tried out the beta. Our consumption-based pricing model makes it easy for customers to try and adopt these new capabilities and that drives incremental consumption and revenue for us. And Elastic was named a visionary in the 2022 Gartner Magic Quadrant for APM and Observability for the second consecutive year. In addition, Elastic Observability was named among the top three vendors in five out of six use cases in Gartner's companion report, the 2022 Gartner Critical Capabilities for APM and Observability. further showcasing the tremendous traction we've gained across our overall observability solution. And lastly, with Elastic Enterprise Search, we continue to see momentum as organizations look to Elastic to fuel their database search, enterprise system offloading, e-commerce, customer support, workplace content, website search experiences, and more. In Q1, we expanded business with a leading American health solutions company who is using Elastic Enterprise Search to power their customer experience evolution and fuel their clinical support product. This purpose-built application built on Elastic Search provides supporting staff with a seamless search experience that delivers a comprehensive, easy-to-read, near real-time view of their customers. This enables team members to provide faster and more accurate health recommendations and an overall better customer experience. This quarter, we also expanded our business with one of the world's leading financial institutions who has been steadily increasing its adoption of Elastic over the past several years. In addition to designating Elastic, As their enterprise standard for search, they operate a centralized center of excellence that provides elastic enterprise search to multiple lines of business, supporting a wide variety of use cases, including fraud analytics, regulatory reporting, payment search, and customer account lookup. On the innovation front, we are encouraged by the early, strong interest in our enhanced machine learning and natural language processing capabilities, which we first introduced in technical preview with our 8.0 release in February. Now we have over 200 customers trying out the capabilities, testing out the features, and providing us feedback across use cases, from e-commerce and career search to online dating, patent search, and graphic design. Our integrated ML capabilities are a significant component of our competitive mode across all three of our solution areas and help drive consumption on our platform. I'm excited to share that we are officially getting back together in person with our Elastic customers and community via our Elasticon Comes to You series. We are hosting six events around the world, where our community and customers will come together to learn about the latest Elastic technology and how we can drive transformation with Elastic Cloud together. These events drive greater awareness, fuel pipeline, and reinforce our bottom-up adoption and product-led growth. Moving on to our focus on profitable growth. I'm proud of the team and the fact that we exceeded both our revenue and our profitability targets for Q1. We continue to invest in the business in a disciplined way, primarily in our sales capacity and in key technical roles. And at the same time, we let a significant portion of our revenue outperformance drop to the bottom line, demonstrating the operating leverage inherent in the business model. slightly increased our non-GAAP operating margin outlook for the year. Based on the continuing customer adoption of our solutions and our momentum in Elastic Cloud, we remain confident of achieving our goal of $2 billion in revenue in fiscal year 2025, while also continuing to grow our operating margin over time. In other important developments, I am thrilled to announce that Ken Exner is joining Elastic as our Chief Product Officer, effective August 29th. Ken has close to three decades of experience leading product and engineering teams. He joins us from AWS, where he spent 16 years building and managing dozens of products used by millions of customers worldwide. Most recently, He served as the VP and GM of AWS Developer Tools, where he ran a portfolio of over 30 products. Ken's experience building and running hyperscale cloud services will accelerate our cloud-first business strategy and strengthen our relationships with all of our cloud partners. This past quarter, we launched our first company ESG report and added industry veteran Sohaib Abbasi to the elastic board as vice chair. Sohaib has extensive experience supporting organizations as they grow to become multi-billion dollar companies. We're also looking forward to sharing more about our business with you all during our upcoming analyst day on September 19th. Now, as I turn the call over to Janesh, I remain very confident in our future. We are committed to driving durable growth, widening our competitive moat, and fueling profitable growth. Thank you. And now, over to you, Dinesh.