Earnings call transcript Q3 2023

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Operator

Good day, and welcome to the Elastic Third Quarter Fiscal 2023 Earnings Results Conference Call. [Operator Instructions] Please note that today's event is being recorded.

I would now like to turn the conference over to Nikolay Beliov, Vice President of Investor Relations. Please go ahead, sir.

Nikolay Beliov

Thank you. you Elastic's us Financial Third thank call today's Results. and discuss to Quarter afternoon, for on joining conference Good Fiscal XXXX

and On Chief Officer have we Chief Janesh Officer; and the Financial Moorjani, Officer. Ash Operating Chief call, Executive Kulkarni,

we their take Following will questions. remarks, prepared

posted conclusion webcast, remarks release is the can downloaded the in with issued live be can the Relations market was Slides, be Elastic at website. press website, after the viewed our Our of webcast on ir.elastic.co. which and also close of today and on accompany this Investor conjunction

may Our are demand predictions, speak only discussion that currently statements revise subject will we solutions and filings include and and forward-looking accompanying described by the in products and differ statements today of uncertainties could our cause as These our statements, and the factors of which are regarding information. to future the this webcast obligation on call revenue risks include press to other forward-looking known uncertainties any to materially. expectations the in our included fully Please earlier us, to those this law. and with that date release Commission. and these in our disclaim estimates, risks for forward-looking the results and the Securities Exchange actual more We refer update unless issued included to slides or required based

regarding reconciliations non-GAAP We release will the including slides. press Disclosures found comparable certain measures, can and measures. discuss be GAAP the in also financial non-GAAP most with measures

the on will XX Investor our under be website The available webcast for days call replay Relations link. next of company this the

Telecommunications we the X, XXXX business fiscal of XX, Friday, be Media Morgan in quiet Our the XXXX, participating XXXX. and on Technology, close Stanley On fourth begins Conference. April period at March will quarter

turn I'll to over that, it Ash. With

Ash Kulkarni

the completely focused Thank market pleased customers the on in how remain Nikolay, a environment. continue business performed opportunity context about and challenging of ahead all I'm for us. to and with of our thank joining this We and you us. excited you, we quarter our be

revenue in Cloud business the deliver revenue, with customer year-over-year grew and XX% grew XX% margin X.X%. XX% up XX% currency. Elastic constant of in and we constant total to Our quarter from strong stronger-than-expected total year commitments, ago currency, the non-GAAP manage of while comprised third continued customers We platform. saw operating the discipline our contractual consolidating in quarter year-over-year on in

are the And I ahead environment; -- platform key discuss I macro to our X like touch second, Before how for executing would we on the the Elastic. areas consolidation in current business, topics: for first, opportunity environment. the focus third,

optimize consistent to cycles SMB sizes of with on the to saw near We the challenging continue third additional industries. across we segment levels be in had focused and execution. continue their consumption approvals, are We times across as anticipated, QX, customers term. usage. continue these deal everyone, this we anticipate customers of remained will quarter for that and all Also, consistent optimization with challenging. elongated First, Despite

business, steps across opportunity. market the solid The adjust taken topic. we investments This and second leads me have optimize in long-term demonstrate give to and our the confidence continued the to us execution our

capacity customer with a and have commitments. well pipeline commercial performed selectively of our to and those strong We in continued enterprise portions business invest sales seen the healthy have and

expansion demonstrating and shortly. investments. on drive and our on attracting we the expansion our Janesh continue as growth across focus acquisition customer margin focused healthy On for higher a we motions between is remain investments touch that customers balance stronger this and side, the and for will key propensity to refine SMB The margins we growth. return on have company, are a

consolidate in innovation. suppliers this capabilities Third, to platform look strengths to our without environment sacrificing customers our play macro as

deliver their land-and-expand is We win with outcomes, limiting in innovations helping within across bolstered our customers continued solutions and business strategy by can underlying data by platform. they time, visibility while across total both at Our and better of cost working who scale. Elastic expansions the customers, solutions, not need lowering to reliable what unified mission-critical their ownership. into for bring is performing their Elastic keep secure, at same business systems

Now Starting is of share customers growth, are profitable the X areas: looking the with Elastic across benefiting believe visibility. progress simplify platform and moat Elastic productivity to environment, durable increase and competitive consolidation focus I'd reduce costs like growth. and growth. the our IT our widening budgets durable fueling key We as to to driving the

as key past of with more infrastructure. the IT expressed they Elastic their of do consistently with met desire a quarter, geographies, dozens central Over our I customers their pillar and to across

We expanding continued solutions. growth to Cloud in also customers adopting see across Elastic strong and

doubled Our revenue ACV. hyperscaler million $X through transactions the over including cloud marketplaces year-over-year multiple

is its across this consolidate to The regulatory example, requirements. gain Cloud an services security meeting streamline using while environment As and that X-figure with AWS its quarter, a an observability Elastic financial sensitive compliance on we provider deal and Fortune visibility company greater data infrastructure. chose safeguarding Elastic XXX costs to closed operational and customer

with learning. tiered its another AIOps also and financial and external on most expanding is observability, their capabilities and our security continue to Elastic use expanding deal of XX a They on closed storage company cases like machine to use We recently monitoring X-figure multinational us, with search and grow advanced capabilities services top that platform. consolidate internal and

customers and XX customer, than go-to-market session with Media. with front, joint and in our quarter, met events Reinvent, programs a partners, participated the cloud DISH and On our go-to-market hyperscaler Elastic held more AWS we prospects including last X,XXX where

engagement investment the the partnership to growing that flagship of in of of we a and momentum testament event our and customers level this is Our mutual base serve.

we new we growth. experience share in His cybersecurity to to background Chief excited go-to-market marketing recently a increasing executing Matthew plans The times. as Marketing long-term company. through support company emerge to challenging generational a sales journey developing I'm Finally, Elastic brings build these Matt opportunity experience accelerate and driving is a Officer to demand Elastic. go welcomed that for Donoghue. have strong the positioning are extensive and and and economic we we will help our clear, even as us business stronger

Now moat. widening competitive to our on

continue machine part solutions our bolstered be on capabilities. Elastic in learning and by AI innovation by driven the to platform, Our

industry deliver have reported customer As transformation. indicate, to investments in analysts and digital our leaders' fundamental own to are business surveys ML ability also IT on

of for part is adopting customers we have continues we adopt a addition integrating our to in search, ML-based enabled key higher to subscription A integrate learning be natively models our that tiers. By the driver customers features allowing to ML customers machine areas. own our to to leveraging the offer. core each of approach machine new models of learning their major across into Elastic our our solution

Now some and with security. innovation details Starting share across about I wins our security, customer solutions. will search observability enterprise additional and

which with security business we and customer, goal a longtime the its telecommunications company, is with Elastic with Google and multinational countries. defenses response. cyber leading using across than quarter, operations Cloud to they A renewed Security This consolidating standardizing their of business Marketplace bolster the expanded via XX Elastic more Elastic threat detection with

guides, They Security AWS XDR top to renewed several of SIEM, including endpoint. grows. across through a our using We Elastic protections Cloud multiyear simple, and and deception-based use investigation expand MSSP security against a with deal as protections new capabilities data exfiltration analytics. usage XXX use on their also chose their expand to pricing elastic We entity QX, for in that interactive them delivered ransomware new improved Elastic X-figure cases their enables consumption-based customer

Security recognized in Analytics, by a to in continues also firms. highest IDC our for also for leading be achieving strategy. was Security player Elastic Elastic was Marketscape In XXXX named SIEM. appearance first Elastic Wave industry major the Forrester leader, a for the analyst named score the

moving Observability. on Now to Elastic

renewed leading telecommunications a Deutsche and X-figure deal we quarter, Telekom, with This expanded company. integrated a

as customer, to company machine As for uses in use endpoint forecast that an planning The Security and bandwidth Observability costs. networks monitoring and Elastic secure as own then capabilities Elastic well for to Elastic its optimizing like them networks. also internal they SIEM, learning assist advanced EDR calculations their multi-cloud

issues new including the by that in recognized evaluation being receiving for performer as wave Ops, criteria. also curated strong appeared XX accelerates a introduced in cause innovations, availability in Elastic for we root identification Forrester first by dependencies. and QX, the In or AI scores caused the journey aiding of time performance the a possible analysis application highest

Enterprise on Now Search. to

users. With This experience quarter, across while India, APJ in we X-figure closed they Elastic deal an per moved reduce which Search marketplace. X.X with transactions million to shopping in latency new Open e-commerce social via a for search Search, were optimizing to their dramatically Enterprise the Google a the platform day AWS Elastic of average Cloud from able major

across as processing leader new On right vision. tools also share the search furthest and both pleased higher and completeness implement search to accelerating Quadrant the for I'm Engines, our manage a the language innovation value time Magic we quality Elastic that to indices, of introduced Gartner to for was Insights positioned recognized XXXX results. to natural in front,

in $X June market and target us When focus in growth. it of at the the 'XX on FY our our our opportunity and to on shared long-term first the business profitable trajectory model front billion Moving we year, the reflected of revenue growth of last time.

reemphasize Similarly, innovations in in founded in achieve the in billion customer mark the That to reflected we than customer not over exceeding current multibillion-dollar conviction product will revenue we commitments Cloud patterns consumption earlier. in $X in commitments, take Cloud. while revenue the expect and are of we the strength we we on total us, will anticipated. revenue do longer term, of examples conviction 'XX. shared are softer this, in is fully long-term our the continued we Elastic in operating company expect our near environment I macro confidence Although as Having said and I opportunity seeing given initially all given time, be Elastic customer healthy especially of to XX% FY front in, a expect Elastic the the

Now on profitability.

discipline 'XX expansion in the the established our in last highly this As we we and are fiscal confident 'XX. non-GAAP margin FY operating deliver demonstrated with with ability to to committed target remain we've managing further quarter quarter, business XX%

fundamentals profitability. strategy continuing Our our We while to remain remain growth increasing committed strong. delivering

In closing, contribution and their I thank want confidence. also our their performance. partners for our for I customers, support and employees thank continued to to want and investors dedication to our

Janesh in it results through turn detail. over our to I'll With more to that, go

Janesh Moorjani

Thanks, Ash.

again We the year-over-year end bottom in despite quarter Cloud and for are pleased constant we Elastic delivered line above revenue, We growth grew XX% environment. economic currency. XX% current top constant total line our currency once the of and high in the in came guidance that both year-over-year

saw business Let quarter. in X the start distinct me themes with we

these secure First, contractual team with to our executed want to do commitments. we Customers in commitments saw to Elastic. strong customer and levels sales the well more of Elastic, quarter

experiencing solutions, As customers several the this Elastic an important directly it is into revenue. examples indicator provided platform of since marquee and benefits the future translates us of for

we theme customer Customers their consumption segments saw optimize second for saw of look to patterns. to continue ways this The relates our usage. across to We base.

like our capabilities this Combined frozen Although consumption a drive customers of is searchable more our helps the on with headwind, customers snapshots time. platform benefits consolidate a and near-term to over model, platform efficiencies naturally enables workloads with Elastic storage.

our the and made together, and help reduce address customers provide confidence in them ability in pieces underlying capabilities strength us X during growth they while The the also to term. near gives the us costs, long the for these the partner choosing Putting as over customers are to usage time. leveraging to successfully opportunity Elastic of quarter look the market term optimize the to their that business commitments as we

Now similar compared year-over-year Subscription our currency. in year completion projects. total million XX% Total was XX% million, from comprising in in We a quarter was quarter. XX% services and represented Within from let's quarter XX% ago. in $XXX revenue or the to third the constant the Elastic based quarter million, get outlook. revenue currency. continue growing of totaled Elastic from Cloud quarter, sequentially and the XX% revenue timing revenue or ago into of revenue, $XX the $XXX XX% XX% QX up up services consumption in third of currency. revenue year-over-year XX% XX% Cloud results lower given million, XX% constant the be or revenue. year-over-year total XX% revenue of subscriptions, quarter constant year-over-year was XX% prior to in Elastic Cloud currency, Professional month-to-month revenue $XXX or total in constant in of up in saw on arrangements professional the year third to XX% growing the

to it across in not over mix expect Although professional quarters, services we may vary do fluctuate time. significantly

by performance followed a and the the flow fastest, APJ by deal we across around basis. and context EMEA region, flow on saw more geographies add Americas. To grew balanced deal currency-adjusted

to similar the quarter. solution balance contract and We also annual mix maintain continue saw healthy prior in versus solutions across a the values a

customer at Looking metrics.

with strategy XXX our strategy annual customers results. for of propensity added over contract the continued In We was focusing reflected This to such growth. in a above over value we on third end in at $XX,XXX customers. customers our higher X,XXX quarter,

of referenced motion to The continues strong added $XXX,XXX representing and we be a a Looking we the ACV category earlier. strong time. that ACV, in end over of over of customer expand as indicative as commitments company this I customer over land at that such customers is build customers our over underpinning sequential category, bringing multibillion-dollar the over count a number $XXX,XXX and customers XX additions This of us to X,XXX of third quarter. in

also increase, approximately customer ending at continued total total XX,XXX count to customers. Our subscription

the these indicate commitments Elastic. I earlier, strength As to of customer mentioned metrics

Turning to the expansion net rate.

rate net in approximately was by slower expansion part Our driven XXX%, consumption.

reminder, consumption-based rate As our net on customers expansion reflects a arrangements, their their consumption not for and commitment. actual only

metrics large market to and us, Our we strategy remain core to that strong the are Customers indicate our in opportunity. making is ability our address commitments sound. confident customer

we solutions cloud. on give core are used and model mission-critical Our in consumption-based the enormous with cases, flexibility use business customers

discuss to in turning prior better which was margin quarter XX.X% the driven by XX.X% Gross I'll QX. in gross Now improvement mainly the quarter sequential profitability versus subscription measures. for versus non-GAAP with to increased which margins, XX.X% XX.X% the in

the in to the investments continue expenses well. in our we at manage quarter, operating and third expenses Looking business

approximately quarter and, better to earnings than the expected Free in exit actions, in shift of earlier-than-planned significantly X.X%, $X.XX. a share million third quarter. in lesser Our to was due gross quarter an employees to third a on some operating QX. which the was our margin was in better the extent, of restructuring was adjusted flow margin timing the $XX some per expenses from cash Diluted basis

Based strong flow cash we on roughly to and low digits free the increasing margin of be for now to 'XX fiscal are performance, our breakeven. full year compared adjusted prior our outlook outlook our the expect in single for

announced after outflows in quarter. the to second As is a reminder, this the we related the restructuring

We maintain perspective. million. our continue to quarter an equivalents We remain balance with comfortable the with of $XXX sheet. position We cash third cash strong ended a from operating and cash

guidance. to Turning

expectations greater-than-expected quarter, strength I As mentioned and we commitments. customer for third earlier, saw our we the in also exceeded

before customers consider all that Additionally, sizes We continue consumption. trends of to believe slow consumption that optimize it improve again. is further to might they prudent

into this lowering year. the and incorporating are We guidance for possibility QX full our outlook our for are modestly

Further, this. XX headwind spending the growth affected near-term and being simply days fiscal growth Given sequential are to as monitor our fourth environment, third a rates quarter the as in macro only to rates. approximately has by compared cautious X% we are trends. not days we a Year-over-year presents XX reminder, this quarter, of

tightly expenses including the commercial and business, sales an enterprise investing capacity. manage with to continue also while in We discipline

we in performance non-GAAP seasonally are Given The approximately higher outlook outlook of year. far, employee expenses the related raising margin million timing for fourth to reflects $XX event. our so benefit the operating quarter the all-hands and in third Engineering the our our for strong quarter expenses

representing constant background, revenue the the With expect growth XX% 'XX, at revenue million currency midpoint. the million, On to at range total midpoint. $XXX fiscal the of of we for expect we fourth $XXX XX% in of that total growth quarter year-over-year a year-over-year basis,

outstanding. non-GAAP in to average X.X% and $X.XX XXX range using to We range ordinary expect the shares earnings million million X.X% operating margin share between diluted $X.XX non-GAAP per weighted XXX of and in the of

we $X.XXX fiscal range XX% now in of of full growth billion at $X.XXX total midpoint. 'XX, growth year-over-year total to expect we at the revenue XX% expect midpoint. basis, the representing currency the On year-over-year billion, constant revenue For a

the per outstanding. range operating diluted fiscal share of XXX shares We XX in average non-GAAP and X.X% earnings million in ordinary X.X% to full million the for weighted expect non-GAAP $X.XX margin using 'XX $X.XX and range of between to

looking Finally, XXXX. ahead fiscal to

on earnings know, provide next QX the guidance you call. year we fiscal the for As

middle do shape seeing business fourth currently significant sense in in of in given on are planning have close quarter. of to said We the that, want basis. how give revenue to we statements the process, we up sustainable a of we a the next you a volume made and still Having confidence strong delivering our have are growth our we year's about

revenue long-term a durable delivering on focused build remain multibillion-dollar we as we First, growth business. revenue

as that Accordingly, view in macroeconomic we our be remain revenue We are to right journey. confident mid- fiscal in are we high the now, the growth of 'XX we in environment. to expect of stages of total in still early prudent teens. the Yet, growth this

total 'XX. half expectation full be tougher year half We first in our comparisons against given than lower growth the revenue the expect year-over-year first for to slightly fiscal of

will consumption and guidance earnings next on provide commitments call. customer the We continue to closely we'll patterns, formal monitor and

Second, driver we cloud remain us. for revenue expect growth a will

by in new than self-managed. cases and driven cloud migrations growth Our from predominantly expansion use is rather

Third, we regard. our year, XX% of growth. the already committed that the business support with discipline in non-GAAP invest taken are actions to of will durable in sufficient and long-term we continue margin to have drive We next to in operating delivering remain

while higher our the seasonally quarter, first expenses the ramp of in over revenue are year. Some will

the be Accordingly, we operating point margin. expect on low QX to non-GAAP

expenses. faster on summary, well fiscal we and focused durable for believe profitability. consistent are continue we points also non-GAAP in 'XX growth to the expansion We margin flow that remain in margin we operating non-GAAP as positioned have revenue to Longer expect grow execution In and we of growth with operating than long-term deliver to increase. cash several fiscal expect adjusted 'XX, term, free

questions. let's go take that, Operator? and with And ahead

Operator

first Pinjalim [Operator comes with Bora question from Today's JPMorgan. Instructions]

Pinjalim Bora

high help of cloud the or step maybe down a Janesh, kind a unpack to just mix the rest understand kind which I logos? continue to of to monthly to question, about wanted there. business, continue think Are the me bit to or guidance cloud you to the to growth you we assuming teens. the rate assumptions the First the of kind take the net to new trends. drivers fiscal moderate? 'XX the leads of moderate Just should consumption is trends different that understand kind How as expansion of trying

Janesh Moorjani

to that. take happy Pinjalim,

least how we we as up. look, I'd for say initial early, the shaping we things see view So but of an still at outlook today think year, you about next to with wanted it's provide

So about outlook or that, or drivers, an of will the broader to framework. not predictions as but not think obviously trying several which macro. it a least we're within And make in assumptions there's be about the the any environment,

I provided, our really that within consumption the come course, the think that point. accommodate we've in and just will of variations certainly of own bulk then, range from can But environment to some it down execution. this we patterns macro to

commitments very biggest delivered us. We've QX. strong of here QX have That's customer We quarter usually the ahead still in year. in seasonally our

just we're capacity. selling year sure entered that well making with we and in appropriate also here next on execute So we've QX, -- also we focused

future. the continue And evolve. very I think carefully, so and underlying that that continues secured us commitments strong customers around the as to about from some with customers be enjoy consumption really continues momentum to monitoring that the we've for a the be we drivers, to obviously indication We'll but of

narrower models. range, build little this that guidance will we then those thinking So we and more view about on next we but as takes a the some bit provide we're of at our are the call, stage when a of internally to a formal puts get

Pinjalim Bora

ML in it. not Ash. for have you topical. AIOps Okay. some for been time little you, a [XPac]. has -- I bit the we one Got know had And And question

of about state much the on really operating think heard you context AI of of it Elastic. the How way not you about feature? future? do from product you product broader have a intern kind in think Ops? Do a as or think of future of Do We IP as it an

Ash Kulkarni

the observability the about Yes, you the is how the ensure end question, metrics, day, their and At most it thanks can those do users enable real cetera, whether job quickly in that to for to core about efficient foremost, it, way ensure can, to be in learning kinds fundamentally relevant the that AIOps is first of user way place I right into you one surface Pinjalim, AIOps possible. think data, bring profiles, you all apply then logs, that is that all that monitoring most can all it's issues traces, the you of information, to et relevant. might and machine ensuring

has root So are and you're through the level typical to site operator fatigue meeting that SLOs ensure cause they a that analysis get to go reducing to to reliability of their SLIs.

work talked also which that it's really the We're gave, good being and player actually customers this included the seen, all about great look been it's that the TRACE to core critical, Ops, machine it that that that stronger recognized. very, metrics incorporating stronger data, and some that makes algorithms is their is analyst and me make putting the we platform, AI all in in sure cases. for algorithms to use And users our think of into apply users that examples -- using recognized, make very of I the very bring, at about one continue we how the we kinds going I might it's recognition, being that's to into in but doing seeing about that's AIOps customer us that of a that the fact work, we it's of customer all in always we feel see possible provide, making learning, observability. confident bring that feel how the into -- also being and we've great place but I are work log help data to data,

Operator

question Tyler Citi. Radke with comes from next Our

Tyler Radke

I wanted And Yes. start. to first

how there's lot interesting the ML use you of of you enterprise just application search, question could And is ML of environment? the update asked. if on kind large you about are But the are percent you the of related cases, on just and base been seeing in But of AIOps? are give one of how premium talked you to SKU a some What an that? us a How tier Ash, that opportunity seeing uptake broader over beyond given approaching migrated there? the then the models just adoption? Pinjalim this that language

Ash Kulkarni

Yes. No, absolutely.

that element X.X. done lot search been we what interest for learning of at the about obviously, out We and the we've a talked a I So talked very Elastic know now, vector past. a last years. learning. with there's about core Right learning, has came machine AI. machine of many in I've machine When thanks version lot and and in Open this area, AI ChatGPT to it

really in to exciting some they is really transformer I this we the can And do. like a ways, the And models large introduced been opportunity. ChatGPT phases. we Though, and all in we that have still agree think that it's has long what see very complementary term, early

last many machine now in with ability investments on load transformer our customers If to in our models the very thoughtfully some using making releases, in And area direction data for build you applications into the this top where large provide search, added we've platform, for using platform the Elastic to think we Search. the directly we've of been in foundation about Elastic customers learning. their vector our

directly. perform take all and these on they using perform models, don't out Elastic activities So they Search, them data Search in of have inference the Elastic can the large on to data transformer

kinds rely that is like core these require functionality they The of by embeddings. of built often they on Open capabilities. ones many vector transformer search, AI, models, the vector And often search

our talked vector search are language by you these learning And that customers in So machine about areas now how the on are a new But hopefully, functionalities. search of can the get these coming using of build past. together. these powered natural sense things applications kinds platform we've

So very in the this that but long to a term, is awesome days. early still be opportunity, it's I really feel going

So this be use for on are working long play we and to models that customers platform it's Search the innovating bring on can is area a of We've it. compelling that as going use foundational a on been we really data us. role time. that to And then that what's data, we -- these kinds their ML believe Elastic in for

Janesh Moorjani

this I'll enterprise to see continued on adoption, tier there. Tyler, is Janesh. strength that And the add we've

customer snapshots. particularly see continue like driven We features to by excellent adoption, searchable

as with I hybrid search, features that further that We think traction. with we someday. expect expect to you that get like cross-cluster hybrid we'll finally go, will continue search there But features I cross-cluster learn to pronounce -- like

we're so enterprise driver to will that a be the growth and And for excited tier, about subscription think continue I us.

total subscription tier You'll remember remains was it customer year, growing for fastest it XX% spend last Elastic on Cloud and the us. that of

as reminder tier. fact, a just our sales that customers this. folks maybe may familiar of enterprise as you the not is Many are, final And know, subscription in the of as with not a some platinum for the on other proxy out for enterprise be there The in tier, large our segment. progress enterprise

So a that's thing. just naming

Tyler Radke

What nicely, just revenue where you're And wanted medium-term strong you're on in second guess in drove well grow of that disconnect the taking just Janesh, the in of there ask kind strong it help contracting seeing, weaker stronger early about down your and contracting to the in coming billings is XX%, a outlook. than quarter. comments cloud I the I Clearly, a cloud, you quite maybe terms question is us given renewals revenue. kind there? contracting understand saw and Was that? the -- good mix targets? of between on-prem your Just above

Janesh Moorjani

take that. to Happy Yes.

ways billings, quarter as the not look the at reasons look we all which number primarily was so there's of at execution. strong a know, of billings, the just what we or at and aside look of terms holding in you business. it the in from sales We to saw of in So look revenue, the at standpoint fundamentally,

QX early out. behavior It So deals about changed. levels of not Fundamentally, terms benefit pushed We pull-ins. from and any some that pushouts cycles see customer has not renewals. and environment the this buying was particular not always enterprise was sales about in from of

to the well sales execution just was that it we think at to of really saw our old-fashioned part did adapt on QX. of I the team end good the circumstances that

felt So good pretty that. about we

about then in And within think significantly components adoption stronger. self-managed sort actually if cloud and saw cloud. amount a of the the you cloud came strength fair on of we terms of that, in commitments on That contractual

great are that. So that we it's seeing

reflects that they've are because consolidation Cloud and customers us to that eventually revenue looking made Elastic tool think will all preferences. workloads over help for of customer commitments. commitments on will this time. translate more environment, the I And over into consolidate contractual just time, that these In are

a we've around largely optimization as timing how every I broadly seen well. further, trend at you've consumption patterns. seen this And that and in to think we continuing of towards the the about is customers are as make question as talked consumption the go look near-term more that's to patterns, So dollar what

So fiscal what of for that's as QX some we as quarter some factored what in well, the 'XX. of we saw the into for as guide early well that's and outlook the

Operator

next with Bank comes question The from Koji Ikeda of America.

Koji Ikeda

is same of Because patterns macro guide, quite that growth and here? look that you're kind rate, Or to deeper and little to usage mid-teens the gets go the mean guess really this appreciate the can -- this kind percent-ish the for the to get And seeing better when consumption does you gave, of early look, the seeing a the color a mid-teens quarter there. dig does question the here assumes than XXXX and all But some at a you're bit there. business perspective sequential growth bit I bookings higher I X it from within I the things stays and rate wanted a fiscal XXXX that sequential patterns that to X% a in XXXX, I the guide back fourth guide from of macro perspective. guys that the target? it now for and is get growth it

Janesh Moorjani

I'll Koji, take that.

maybe to on So QX guide. just clarify the

Just QX fiscal every and reminder, XX has XX quarter as year. days, a this has days other

QX. about in growth So that point X represents sequential a headwind percentage

factor and so year that's that something just And we to need that well. last as had you in, obviously

year-over-year you rates, does but out. affect that So the not rates as the it sequential does build affect growth growth it

year-over-year our terms, really so an about QX, we've with rate is think And growth the And consistent initial that's that. and outlook. FY growth in for provided 'XX so guide if XX% obviously, rate constant you currency

formalize later, to range. teens as that but this mid- will in guidance high We

variability macro. within outlook predicating thesis early. anything based on still not not on macro certainly that, are the and we It's in I this the today. predict some different on assuming obviously of a within the any earlier, there improvement. some about out current as position So very said absorb we degree have see state that, some We further really. We're then And significantly that of we're We not the to in ability direction of of provided what that. to what we know

stage. at way fiscal that's 'XX this we're thinking So the about

Operator

next with question Ittai from Kidron comes Your Oppenheimer.

Ittai Kidron

Two want things in. I to dig

is us that think customers. to all, are in seeing why process of order quickly quarters with why number exact the be they Can fairly multiple the optimize activity, than actions? and takes optimization can deployments, examples rather you're number over executed moving wouldn't quickly? customer why is linger you First what this one one. they processes, optimization their give then of on? an two, optimization take something very that's a does Sometimes done why And when Like that

Ash Kulkarni

for the take I'll Thanks this. Ittai, question. Yes,

point. optimization to That's So more less temporarily plans data. one frozen they to to They So cases, for ingest they their forms, accelerate workloads shift choose can storage like store right? less price In take some at example, customers their performant our can optimize tier a can choose to just how maybe could several of data. lower example.

some just are And they think are because be about costs trying starting cetera. the For might involved, just their that et little example, they some of a sampling. they expansion it to cases, might in amount slower do

for consumption-based it trying to these important in pricing we can optimizations at to these think the for seen Because that to our the that we optimization. temporary. it and cases, optimizations makes incentivizes that many optimize. have I open of what is use flexible if look want both the and it do value said limits we over they is takeaway customers that, bring of customer that possible we kinds fact provide is is And do that kind use that platform us of to see some additional a them end that optimize, to is over are of of cases. they them able multiple to additional can them what when a use at in some model we've way use Having to make are there that the to workloads to sure cases, the and are again day,

that, things customer have of seen commitments right? the that reflect in And we some terms of

are Those can that customers customer believe more platform. on Elastic with our commitments they Elastic do because

take us be there better there term, might able in makes over share optimization the of time. partner And that some but believe so overall might only to near we be it spend use the a larger their existing although for case, not a

how it, seeing. that's think you and about that's effectively what So we're should

Ittai Kidron

guide, also you're current growth not your I'm team's that's would that slowly I view. suspect dwindling? execution. This That's the like macro tie an a them but 'XX growing, to they're then, lower is calling to on but commentary under I assumption meaning, you would Wouldn't into where kind call. environment is And as under a -- macro could and revenue are point that our is at don't want you're -- assumption bit you trying assume that to more point that into to productive of that the execution I little where you that It in still mean of expect helpful. be trying since think really salespeople hiring I than mentioned, as And underinvesting do that Why as opportunity? weak? in it to not Janesh, haven't a rationalized the the just seems you're 'XX, dig capacity 'XX. their of their and a know, capacity issue. your would for Why the out guidance clearly, 'XX will macro I'm just I purely the in your assume be from headcount. think

rather we that macro why you? again, think So underinvestment wouldn't than the impacting 'XX is really just

Janesh Moorjani

Yes, there. and obviously there's moving a in many question, Ittai, it's great parts

try and the we're also So let that, execution unpack about sales I'll and macro and consumption about where making investments. patterns talk and me our

I So not think if assuming with, I to macro. mentioned, we're the start any change macro, as the in about

that. would it be think I for to hard call us

just will call. why a narrower and range the how broadly, relatively this macro formalize that's we range the we provided next at point So a wide evolves see that then into on we'll

our There's In executed That said, quarter. of to of deals lot of proud QX we're done, we work lot a a executed. yes, be QX, biggest of sales terms the really to actually the results obviously execution, in quarter here on obviously and And closed. well all then build way is be and to fiscal 'XX one X continue foundation in execution continue in great environment, need of and deliver strong to through macro a as the quarters of to tough we QX well. team that

So and about we're continue very on over thoughtful the to realistic execution need drive sustained -- and focused time. to

in that of long-term at the in consumption end With quarter but selling I here, that that and and we that are high-risk we is did and respect to do. time to When the investing hiring of we with investing not see are we the know third investments we've best patterns, to drive at clear actions it before we're to sales. investments where investments, part as the quarter in talk positioned where capacity, of But enterprise and the we growth. and invest a took opportunity, hiring driving were can investing trends, making patterns, diligently about market to we well going and continued drive thoughtful we areas lots growth or respect experiments to in early continue second about that's we what with

want the growth, the compromise balanced particularly growth don't capacity ensuring about is So we backdrop and which line on the profitability, selling we'll environment right entering top now. it against in are have ensure but that we the fiscal to again, of 'XX. right We

us as respect that's what the is hard earlier, control term. something translate finally, obviously directly commitments that for mentioned that's on then which over of revenue with eventually the are I into And us near to making gives in strength consumption time. Elastic the customers there But Cloud, patterns, to will comfort

Operator

Barclays. from Lenschow with comes question Raimo next The

Raimo Lenschow

on are in the at as by have we something Is that question What you quick a the with to? on-premise. pointed decelerating moment willingness was kind out you what numbers cloud to there of and stay that -- longer it of people the assets behavior that cloud? seeing in A like your you've little competitors? Is seen are on-premise pay terms terms utilize? a you of from But seeing bit. obviously customers of something in cloud What versus for some is like should attention theme terms of

Ash Kulkarni

Yes.

option. customers the experience that we've right? self-managed I customers our recognize of never the that on-prem, the think our to that Obviously, Elastic Cloud it's end We've to we believe offerings. important have as day, always from at choice. migrate to to is given cloud, best forced way it an But

revenue traction. a our customers good start as annual commitments, Janesh or In up. since on we for seen And consumption strong of seeing takes out, are translates consumption, the to both and that obviously, only we it data cloud in sell we've a recognize time platform. contract, Elastic in some And in onto as But sales-driven fundamentally, bringing to cloud typically, Cloud, into called bit self-managed takes ramps we seeing good our time We've Elastic when Cloud. revenue little cloud. show up. that been just definitely motion, momentum in And

So haven't forced the in that or any move direction one be of it people the in to mentioned, because might anyways. things never we that the meaningful explicitly other way, fact that and you just seen we've

Raimo Lenschow

Yes.

et on customer other Perfect. sense. then Okay. Makes retention, And cetera. was the question

in about much you this kind takes terms Can talk at terms run. there dynamics of customer the smaller, of That that but in but the think customer the we might and look know seeing puts this it lower bit SMB number, quarter, actually I like value-add you really of which forward add little the if on do is renewal, to bit So of that us that in, focus new of the are more -- little like was what anymore. about SMB? obviously better to attrition, a higher customers added for et cetera? kind number Like you're a long then don't going customers you get for then deemphasizing

Janesh Moorjani

as on It's number head, before. of are take the the I'll hit -- focused additions right? maybe the shared Look, not growth. on Raimo, maximize you more of customer Yes, drive to we our additions as much that customer volume it we've the profitable we We're one. of composition trying

reflect good focus a we that on adds So that seen on spend. pleased the our momentum that's pretty have to so we've that with. were net customers propensity And and something customer higher front,

And better at If a of that increase that versus than us, quarter. prior over little the XXX look quarter. $XX,XXX an customers you a bit the was year that's with the approximately spend customers prior

the group, $XXX,XXX with that's So customer about think over than our we you motion. X,XXX then additions that category. of we as about that exited land-and-expand -- of overall larger in over a the count reported net business the XX category, critical more And underpinning in part with customers customers $XXX,XXX-plus of And that in there. customers

customers over way So business time. focus efficient grow this think is our attract of driving we the more on really and a all and growth, right profitable to our just part

long with I total attract high-quality will if of of and time, that bounce reported, the every that over really are quite we we there. and number about But customers that then around And said, that's It's we tail happy as of ensuring focus we terms main the not customers on quarter. think volume. the our grow in outcome

Operator

with question Rangan next The Sachs. comes Goldman from Kash

Kash Rangan

with seeing I base? That seeing happening consumption, weeks noticeable you're luxury, but gen? a into color trends, also, cloud SMB, what the can Ash, luxury what's get of to within we've the the be back. the versus are you you're if you And respect enterprise front large would a your end to of any your any of couple Any had to also the And maybe quarter, curious trends at since a demand top a not we seeing take some with AWS funnel. When on the look perspective great. month Azure? and step trends customer are of that just respect of the versus end -- offer was you could at

Ash Kulkarni

in questions Thanks, reverse of Kash. some Maybe order. address of I'll sort the

in we se. seen the that did Like a we sense the are are lot terms marketplace on some doing several change customers. marketplaces, our traction doubled. with making deals good think through seeing so fact choice And these large there segments were we we you haven't is the our color of per some on these this are multimillion one partners. of that large there. customers really terms customers I cloud commentary gave that customers dollar market, marketplaces That gives quarter, talked a of I of the -- did that to business and them some about that cloud the we cloud the customers, another, any versus has in larger large through on making, the So large trends revenue had the -- very provider in in sort some are our of some I of commercial and -- of the cloud through enterprise we the

my believe I the mentioned of And we kinds in and segments Ittai prepared it's in I and things people terms of well. optimizing. I of optimization are like on are consumption. the on the earlier you of larger effectively SMB, ways that that seeing that we about that In customers other seeing just as the That asked -- -- talked which in like kinds question not remarks, question also in but are asked

as very, very And to ourselves do as optimize, the allow good our that's is we factor we that do helping solutions, value -- tremendous are a partner I'm things for particular has seeing with technology, frankly, price And We Like that simple, to making drive in of given apart the been -- customer that's effectively to our other the of of be the terms ability that have one from that's cost-effective just that's tends way. like customers sure commitments. the that that advantageous. looking us are more it current capabilities to feel a innovativeness right? provides to our them what able I focus in environment, a very our position

different of even funnel, terms we in There's about definitely constrained. of and been top in like I been Like in there. I the than about seen haven't talked other the And past. -- significantly anything the that's that talked SMB,

-- we patterns commercial even think beyond specifically be I a out terms lot to different where -- cloud call we could are customers focusing, in across I of in that, But et that's enterprise continues the providers, and any cetera. So accounts, don't success of getting large SMB we with are constrained.

Operator

Our with next RBC from Matt comes Hedberg Markets. question Capital

Anushtha Mittal

Matt for just with to Maybe macro. on Anushtha is This start Hedberg.

so the If the the versus macro in you QX? in far could did quarter, change QX in about what how just environment talk seen out QX? And have you linearity

Janesh Moorjani

take Yes, happily happy. that. I'll

by So our and of linearity activity linearity months, velocity good in quarter. sales the quarter any good specific was affected of in can and deal be actually the in earlier we the terms quite across timing saw linearity always And deals.

So Also, quarters worked us. it's has other that holiday so was in a QX that season, year. the to always relative something nicely for quite the unique

will earlier. consumptions, the quarter, trends that full can in foundation terms different in we that There into across that is called little different overall, the think saw noise I in terms did data the just a QX continue But what around I of as QX, vary we see be months. provided. we customers for the we're of outcomes anticipating trends the that. monthly outlook to for can said, bit that in But the which And across out consumption translated we of

Anushtha Mittal

then risk margin just if impact could you of think savings 'XX? announced fiscal Got fiscal cost thinking the it. about you And we how recently, should XX% and when or about the about 'XX in the that talk

Janesh Moorjani

Yes.

that QX. us expected our -- outlook And out QX a in reported, a as operating played more So to bit that. When and what raise played than the helped when that well. allowed in out the here drive XX% the we for as sequential provided to took little increase actually us we we margin view the XXX people. QX year rift was on action we to really we -- that That's from

bit we In a earlier some saw timing little fact, anything, the if of of actions that expected. than happened

for So that's factored QX for also 'XX. into fiscal the outlook and now

actions that we this that said, point, run I sufficient was further And take don't of need us. that to faster think operating the margin as going the next We grow any largely leverage for model As be function have, of the action in front. goal already the we on I from that a for based on rate achieving year operating revenue XX% is than to is inherent expenses.

Operator

Securities. Truist question Fishbein Joel next from The comes with

Joel Fishbein

have I Ash. one one for actually Janesh and for

address security any to and the puts trends the and market just seeing Janesh, and And expansion Ash, the changes rate. in on about wanted I can ask then, you net you're the dynamics? competitive specifically takes

Ash Kulkarni

Yes. Thanks for question. the

seeing really SIEM examples. traction several terms of I in good are So we security, on about talked and XDR.

work the that doing security is we've closer in benchmarks, about number I talked cloud We about had also are XX capability. using fact quarter, been our of security seeing lot Last XXX. for that now That a there, that cloud CSI interest our capabilities. the we to customers

good seeing we're So interest.

of security our We've these some analytics the and the that in prepared do seen well differentiate leaders. of is ourselves that all been deals. we're recognized, And I benefiting as one as of in you've seeing made, to remarks ability -- in really

that given scalable really interest. this a and present So is getting is open our especially to lot of all customers, feel of from ability. our which We good, a underlying competitive a standpoint, very I solution

gave, all innovation commitments there, work about, lot over And some in this just compete. that security our some in lot talked the so customer and the a that of is and gave has security of to in I that even a strengthened years examples we done of from the ability I we've that coming the examples

we very is feel So continuing. good that business about how

Janesh Moorjani

reflects expansion really And X that on mentioned that and I earlier the commitments the talked a themes on that we net Joel, consumption. rate, decline about,

commitments don't I contracts, prepared as net rate, count expansion the mentioned the consumption but remarks, towards So cloud on does. generally for

in in but saw is. consumption not slower reflected the that the number, commits So that quarter we are the stronger

of over as expansion ramps, consumption will committed net contracts that the help rate. So time,

that the calculation cloud about generally included a And the the than the on side. you was a then strong, bit self-managed bit drivers further, consumed. And not commitments unpack the were I side, a on until slower expansions, in little were said, those if think where year to as ago commitments

which at has attrition, And rate, if I the gross attrition, measures only then look that retention steady. remained

metric XX-month and then I measure. some what the And of terms that are is evolve, how those puts means So of might takes. if a about in trailing it that think

softer than data So the data points more macro in current are points. year-ago recent the climate

So a more the we the that have net rate expect quarters expansion we a will do for further soften comparison. next of until bit normal couple

considers because XX-month trailing count by is you And spending strong customers our to also so as as metric is expansion, mentioned commitments. the our very and customer us much that's of think more there with that customers this cloud is expansion for And more that calculations, of affected one count their dynamics expanding ACV. customer by quarter. measure look land a it most other way I've in that with smaller. before, current at $XXX,XXX And sizes category us are That to get because than about typically not was saw, the

the continue enterprise. businesses. about of good to up feel their further that just becoming We're more we opportunity to And ahead. the all So closer makes us to getting strategic within customers, move very

Operator

question-and-answer would any closing our turn Kulkarni time, Ash I remarks. the At for concludes This conference session. to to over like this back

Ash Kulkarni

we've remain that for with the beyond. both in done. we drive thing demonstrated we've confident us. the and focused to all execution is while strength in customer that profitability We you and The commitments of we our as in I'd things on QX, remain are QX through Thank say ability joining growth pleased in all closing

again, you great have and day. thank So a

Operator

conference disconnect. you has you may today's now attending Thank The and now for concluded. presentation,

Elastic (ESTC) 2 Mar 222023 Q3 Earnings call transcript