Elastic N.V.

Hello and welcome to the Elastic fourth quarter fiscal 2023 earnings 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 telephone keypad. To withdraw from the question queue, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Nikolai Belyov, VP, Investor Relations. Please go ahead.

Thank you. Good afternoon and thank you for joining us on today's conference call to discuss Elastic's fourth quarter and 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 are supplemental to the call, can also be found on the Elastic Investor Relations website at 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 was issued earlier today included in the slides posted on our investor relations website 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 on our company website under the investor relations link. Our first quarter fiscal 2024 quiet period begins at the close of business on Monday, July 17, 2023. On June 6, 2023, we will be participating in the Bank of America Global Technology Conference. And on June 7, 2023, we will be participating in the Rosenblatt Technology Summit. With that, I'll turn it over to Ash.

Thank you, Nikolai, and thank you all for joining us. I'm pleased with how we performed this quarter, given the global market environment, and I'm pleased with our results for the full fiscal year. We remain completely aligned to the needs of our customers, have prioritized focus areas for our business, and continue to be confident about the opportunity ahead of us. Elastic has always had a singular mission, enabling everyone to find the answers that matter from all data in real time at scale. Generative AI and its chat-based intuitive approach to information systems is opening up new opportunities for businesses to offer better services to their customers, make their processes more efficient, and drive new insights from their data. Elastic has been investing in AI and ML capabilities for years, and we have many existing customers and use cases that demonstrate our successes in this area across search, observability, and security. Our newer capabilities, including the Elasticsearch Relevance Engine, or ESRI, and Vector Search, have enabled us to be a key component of the emerging AI stack, to democratize generative AI and enable customers to optimize large language models with their own data in a secure way. We are very excited about the long-term opportunity this represents for Elastic. Now, turning to our most recent quarter, in Q4, total revenue grew 19% year-over-year in constant currency, with Elastic Cloud growing 30% year-over-year in constant currency and representing 40% of total revenue. We saw solid customer contractual commitments with customers continuing to consolidate onto our platform. We again managed the business with discipline to deliver a stronger than expected non-GAAP operating margin of 8.6%. For the full fiscal year, Total revenue grew 24% year-over-year and 28% in constant currency, with Elastic Cloud growing 42% year-over-year and 44% in constant currency. We ended the quarter with more than 1,160 customers with annual contract values over $100K and more than 140 customers with annual contract values over $1 million, highlighting once again that our land and expand strategy is working. During the quarter, customers remained focused on optimizing their cloud consumption. At the same time, customers continued to make large multi-year commitments as they sought ways to consolidate onto the Elastic platform for more use cases to lower their total spend without sacrificing innovation. We continue to leverage our competitive strengths in our core areas of search, log analytics, and security analytics to drive our land and expand strategy. This quarter, we renewed a seven-figure multi-year deal with the Fortune 500 financial services and digital payment technology firm that uses Elastic across all three of our solutions for observability, security, and search. The company has built an enterprise-wide center of excellence around Elastic observability to power its customer-facing applications and ensure its payment transaction systems remain healthy in addition to leveraging Elastic for anomaly detection, threat hunting, cyber identity and access management, and internal search. Like we have discussed previously, our customers routinely tell us the total cost of ownership of our platform is dramatically lower than competitive offerings, enabling us to compete very well in this environment. We have also been driving campaigns to motivate customers to displace incumbent tools and consolidate onto our platforms, and are seeing success with this approach. In Q4, we signed a deal with a large county in California where we displaced their existing logging solution, doubled their ingest capacity, and still saved them close to 40% of what they were spending on their prior vendor. Basically more than three times higher total value than the incumbent solution. Our differentiated platform capabilities and our compelling total cost of ownership make our platform incredibly sticky and have allowed us to maintain strong gross retention rate in Q4, similar to prior quarters. Now, I'd like to share our progress across our three key focus areas, driving durable growth, widening our competitive moat, and fueling profitable growth. Starting with durable growth, Our durable growth is driven by three pillars. First, the strength and versatility of our search analytics platform that enables us to succeed in multiple markets, including search, observability, and security, giving us access to an $88 billion total addressable market. Second, our innovation engine with a track record of delivering capabilities like vector search, AIOps, APM, and security analytics. Innovations that give our customers the confidence that they can trust Elastic now and in the future to continue delivering value. And third, our cloud partnerships. We see strong momentum with our cloud partners and in the hyperscaler marketplaces as customers continue to expand their engagements with us. In Q4, we further strengthened our relationship with AWS through a strategic collaboration agreement that will help accelerate integrated go-to-market activities globally and streamline migration of on-premise workloads to make the cloud adoption journey easier for customers with Elastic Cloud on AWS. Our work with our hyperscaler partners is continuing to help us close large deals through their marketplaces. In Q4, we renewed and expanded a three-year deal with CoreLogic, a leading global property information analytics, and data-enabled solutions provider, which began its observability migration journey with us two years ago, moving to Elastic Cloud via the Google Cloud Marketplace. As an Elastic observability customer, CoreLogic leverages capabilities such as uptime and APM to monitor business-critical applications. CoreLogic also heavily relies on Elastic Enterprise Search for its data indexing and retrieval capabilities. We also expanded and renewed a seven-figure deal this quarter with a leading buy now, pay later provider. The company uses Elastic Observability for log monitoring, as well as Elastic Security for SIEM. They signed a multi-year contract in Q4 for Elastic Cloud via the AWS Marketplace, enabling them to optimize costs and accurately scale their environments as their data usage continues to grow, especially during peak shopping seasons, such as Black Friday and Cyber Monday. Now onto our widening competitive mode. Our solutions continue to be bolstered by innovation on the Elasticsearch platform, driven in part by our AI and machine learning capabilities. ML continues to be a major driver for customers adopting our higher subscription tiers. We already have over 20% of our annual cloud subscriptions using RML functionality for search, observability, or security. For example, in enterprise search, we expanded a three-year deal with one of the largest home improvement retailers in the United States for Elastic on Google Cloud. A longtime customer, the company uses Elastic to power its online retail business, enabling customers to search, browse, and discover products at scale efficiently. They use Elastic for multiple use cases and are leveraging our machine learning capabilities in observability as well as testing capabilities like vector search to enhance search experiences for their customers using a single cost efficient platform compared to legacy solutions. The increased focus on AI and in particular large language models is shaping customer perspectives and business expectations. Our goal is to democratize generative AI and make it possible for everyone to build generative AI applications and domain-specific co-pilots that are relevant to their businesses and optimized with their proprietary data. A recently announced Elasticsearch Relevance Engine, or ESRE, is powered by built-in vector search and transformer models that have been designed specifically to bring the power of AI innovation to proprietary enterprise data. A key part of our approach to machine learning is allowing our customers to integrate their own models in addition to leveraging the models that we offer. By natively integrating machine learning into the core of Elasticsearch, we have enabled our customers to adopt new ML-based features across each of our solution areas This means that thousands of companies that have invested in Elastic solutions can advance AI initiatives today without a lot of additional resources. This is a big competitive strength for Elastic. Our announcement of Esrae last week at the Microsoft Build Conference has been very well received by our customers and partners alike. Now I will share some details about additional innovations in security and observability solutions. This past quarter, we expanded capabilities for Elastic Security, including cloud security posture management for AWS, container workload security, and cloud vulnerability management. Elastic now delivers a comprehensive security analytics solution that includes complete cloud-native application protection, or CNAP, for AWS. providing organizations with the power they need to modernize their cloud security operations, improve attack surface visibility, reduce vendor complexity, and accelerate remediation. We also announced that we are contributing Elastic Common Schema, or ECS, to OpenTelemetry and committing to joint development of a common schema for observability and security logs. OpenTelemetry, or OTEL, is the second highest velocity project in the cloud native computing foundation also known as cncf and is the emerging industry standard for telemetry data encompassing metrics logs and traces cncf choosing the elastic common schema as the basis for their hotel schema for logs reflects the incredibly broad adoption of elastic for log analytics and security analytics and our continued leadership in this area. The merging of ECS and OTEL will help advance OTEL's adoption and help our customers get increasing value from their investments in our platform. In addition, we launched the beta of a new service level objective or SLO monitoring capabilities in Elastic Observability, which let customers measure and monitor service quality such as latency, availability, or other custom-defined key performance metrics. These new capabilities help customers define SLOs, monitor and track performance against these SLOs, and alert on SLO violations to deliver on service levels. Now moving on to my last key point, profitable growth. As we've demonstrated this quarter, we are committed to managing the business with discipline. We delivered a non-GAAP operating margin of 8.6% in Q4 and are on track to deliver on our 10% target for FY24. We continue to expect further margin expansion in fiscal 25. Our fundamentals remain strong. We remain committed to continuing our growth strategy while delivering increasing profitability. In closing, I want to thank our employees for their dedication and contribution to our performance. I also want to thank our customers, partners, and investors for their continued support and confidence. Our conviction in the long-term opportunity in front of us, especially in Elastic Cloud, remains unabated. It is based on the strength of our many exciting product innovations and continued customer confidence in Elastic. We are focused on execution. As the amount of data being generated and used increases and the need for finding answers that matter from all that data becomes more critical, Elastic is well positioned to take advantage of this generational opportunity. With that, I'll turn it over to Ganesh to go through our financial results in more detail.