Q1 2021 Elastic NV Earnings Call
[music].
Good afternoon, and welcome to the elastic first quarter fiscal 2021, <unk> earnings Conference call.
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I would now like to turn the conference over to Anthony less GRI, 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 the last six first quarter fiscal 2021 financial results on the call. We have shy Bannon founder and Chief Executive Officer, and International Johnny Chief Financial Officer. Following their prepared remarks, we'll take questions.
Press release was issued today after the close market is posted on our website slides, which the company. This webcast can be viewed in conjunction with lied remarks can also be downloaded its conclusion of the webcast on the elastic investor Relations website, IR dot elastic on seal.
Our discussion will include forward looking statements, which may include predictions estimates or expectations regarding the impact of the covert 19 pandemic and other information. These forward looking statements are based on factors currently known to US speak only as of the date of this call and are subject to risks and uncertainties that could cause actual results to differ materially we disclaim any.
Obligation to update or revise these forward looking statements. Please refer to the risks and uncertainties included in the press release that we issued earlier today and those more fully described it 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 releasing slides.
The webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link our second quarter fiscal 2021 quiet period begins at the close of business Friday October 16, 2020, we'd also like to inform you that we would be virtually participating in the city 2020 Global Technology Conference on September 19, and the Jefferies two.
20 software conference on September 14, also we are finalizing the details of our inaugural virtual analyst meeting on October 14th and you can expect more specifics and the next few weeks with that I'll turn it over to shot.
Thank you Anthony I'm happy to be here with all of you today I'd like to share. Some highlights Omar Q1 results with you before I do I want to say that I hope everyone is staying safe and healthy during these uncertain times.
I'm proud to report that we started the new fiscal year off strong maintaining resilience. Despite covered 19, and we believe we are well positioned for the future.
In Q1 revenue grew 44% year over year, we ended the quarter with more than 12100 subscription customers, including over 630 with HCV of more than $100000.
And we've maintained our net expansion rate of over 130%.
I'd like to thank our community of customers partners users and employee base is possible.
During the quarter as we anticipated there were some headwind and some tailwinds.
They're headed we werent covering disruptions softness in sectors, such as hospitality and transportation and some customers taking longer to review transactions, resulting in slightly longer sales cycles.
Despite this our sales team continues to deliver for our customers in our business.
We also experienced some tailwinds due to clubbing from the changes to the overall business environment and spending power.
As well as increased demand across some sector.
For example, a U.S. online marketplace for beverage delivery operating across 16 market adopted elastic cloud to power their application Sir.
Our ease of use and scalability allowed them to reduce operational costs and maybe double that demand from their customers.
Our solutions are also line with customer priorities in this environment.
For example increased online interactions plays greater load on mission critical systems, which increased the need for observe ability.
The U.S. healthcare industry has seen an over 30 times increase in tele health appointment compared to pre called Big appointment.
As such one of our customers a leading managed healthcare customer.
As seen video appointment volume will from an average of 700 to 20000 per day.
Well, then ask time matter.
Our long the outage impact significantly more patients then indeed recall that.
And our observe ability solution for log metric and ATM data helps keep those systems online.
As business shift towards more virtual work they need to protect against new an ever evolving starboard increases.
For example, we expanded business with one of the largest global beverage company.
To provide endpoint protection for virtual employees.
These added to their existing observe ability use case and established a lastly, as a new standard over a point solution incumbent.
Looking ahead, we remain focused on investing in our solution or enterprise search observe ability and security.
We believe our single unified technology stack gives us an advantage.
In here and more efficient for us to add a differentiated and proprietary valleys, who are stat that further widens our competitive moat.
Customers can more easily extends through multiple use cases, which drive expansion.
And a unified Stat also makes it easier for us to provide a unified pricing model.
This.
Combined with our powerful distribution model and the ability to deploy and elastic cloud gives customers maximum flexibility and efficiency. If you think about all of these together. It also allows us to move up in the enterprise, while maintaining strong relationship with our user base.
In Q1, the team executed well on this strategy across the three core solutions of our business.
I'd like to share some of the highlights with you.
First our enterprise search solution, which addresses workplace application and site search it's an easy to use it to scale offering with high connectivity and scalability.
Any underpinned by our unified and flexible pricing that allows customers to pay for what they use.
In this quarter, we release workplace search on elastic cloud, which joins the pay self manage offering were launched in may.
In addition, as I mentioned on the last call. We plan to introduce some features of our self managed workplace search offering on our free distribution here.
We've done that now aligning with our other solutions, which also have a free or price or a self managed submissions year via our basic subscription.
This feeds our go to market motion by offering a compelling features that that's accessible to anyone and drives broader adoption by dramatically lowering their barrier to entry.
Customers can also upgrades to our paid offerings, where they benefit from high value enterprise grade features such as single sign on and granular document level security controls.
If you look at all we've released for enterprise search in calendar year 2020 alone.
After John elastic cloud general availability of workplace surge followed by its availability on elastic cloud ended the freeze here the pace of execution has been tremendous.
The team just keeps all building more and more value into this solution and we've seen this resonate with our customers in Q1.
For example.
Major U.S. provider of high speed satellite broadband services adopted workplace search to power their new company wide enterprise search experience.
Additionally, one of the big three U.S. automakers renewed with us to power internal and public facing applications search.
And the government for one of the largest you STD uses elastic to easily search through its databases to derive inside for government wide initiative.
That is our observed mobility solution, which unifies log metric and eight P.M. data analysis.
Our single easy to use technology stack.
Bringing these kind of analysis into one place Wami why is particularly powerful.
Eliminate data silos reduces resolution time and gave us customers complete visibility, we doubt breaking the bank.
Our customers continue to find this compelling.
For example, a leading German automaker expanded business with us in Q1.
They ingesting store terabyte of vehicle loans and metrics from 100, plus micro services like the heads up display or in car entertainment systems into Ella.
There are developers use it to quickly fix issue and increased performance to maintain customer satisfaction with these services.
Our unified pricing and differentiated features were key drivers for this customer continuing to invest in our quarter.
Another outcome maker I already spoke at one of our virtual event in the quarter about how they want to observe ability workloads on elastic cloud.
Hourly shared how elastic helps them deliver against their business objectives of providing a service that easy to use and decreases operational costs.
Additionally, a top 10 global logistics provider of supply chain solutions renewed business with us in Q1.
They have had significant savings because of elastic ability to help them observer their application and avoid gap in service.
In this quarter, we continue to invest in features that add water visibility with more integrations.
We enhance the analyst experience with new added glance views.
We also invested in our highly requested ATM capability with a better version of machine learning job is that there with our EPM service.
It's now easier than ever to automatically surface. When service health is degrading so operators can address issues path.
Development I'm most excited about is the better release of our proprietary unified agent, which enables one click data onboarding or long metric and endpoint security data.
We are delivering a magical experience for users.
Let's say that it's the one agent to rule them all.
This is a massive movement toward our vision of radically simplifying did onboarding and ingest management.
This release enhances ease of use and decreases time to value operators.
Also enables customers to opt level their usage and expand into new use cases.
This is because any word this agent is running to collect observed mobility data.
Customer can also install endpoint security.
This illustrates the power play we have of building on a single stack.
Bill this one's using everywhere.
We are making it easier to capture all your data with a single agent whether its customer is running all promises or in the cloud because while you observe why not put that.
This leads me to our security solution.
Unifies endpoint protection and same into a single experience that fast and scalable any just got even better with our unified agent.
This is a significant step in our security journey.
If you rewind see this time last year, we had not yet joined forces with endgame.
Today, we have successfully taken significant piece of the endgame product and folded into our stat ahead of schedule.
This quarter's better release includes malware prevention as part of the agnostic staff, which is available through our freight distribution here.
More protections are underway and will be available through both of our free and paid subscription peers.
Very proud of what the team has accomplished and we continue to work towards full integration.
And we haven't lost a b in releasing even more features.
Released a better version of out of the box detection.
New case management capabilities will then IBCM security resilience integration and expanded cloud monitoring for NWS cloud trail and operator.
The tax issues with cloud environment and user activity.
When you bring it all together our security solution eliminates blind spot.
Simplifies workflows and drives more action to help protect organizations and their data.
In Q1.
Customers across industries continue would see the value of our unified solution approach.
US based global financial services company closed new business with us to address observe ability and security use cases.
They chose elastic over other incumbent because of our flexible pricing.
Additionally, one of the largest global system integrators committed to build the managed security practice on top of elastic.
Although it is still early days for this relationship. This will further strengthen our ties with a global strategic partner that can provide the lastly, the opportunity to present, our value to see level audiences around the world.
We also saw continued traction in the public sector within defense information system Agency.
Our security solution and services.
During security analysts.
Really.
Now to our cloud business.
We continue to invest where our customers wish to run on the cloud on prem or in hybrid environment.
We'll make employing and scaling our solutions, while minimizing operational costs easy with elastic cloud.
Which is available on a ws global crowd, Microsoft Azure Alibaba and Tencent.
The ease of deployment scaling and reduction in operational costs remain a priority for customers.
For example, SC who spoke at one of our virtual events in Q1, one is there observer basi workloads on elastic cloud on Google Cloud.
In addition to reducing time spent on infrastructure management are ease of use was a deciding factor for them and has played a role in helping them scale to meet greater online engagement this year.
There is a similar story for developers software company, Jay from who closed new business with us in Q1.
They chose elastic over other incumbent security solutions, because our unified pricing and elastic cloud scalability and ease.
Them saves time and streamline call.
We continue to innovate on our cloud offering in Q1.
We broaden our reach with new regions, adding NWS regions in Canada areas and so.
We also announced our federal moderator for realization. In addition to the general availability on Mws Gulf cloud positioning us to better support us federal government customers and further has captured the large opportunities available in the states.
And we delivered two highly requested proprietary features for elastic cloud integration with SWS privately and IP filtering through.
Together, they give customer greater control over the network security layer of their elastic cloud workloads.
Finally, as we scale our business for the future I'm pleased to welcome Paul Applebee's to Atlantic as President worldwide field operations.
Oil is an industry veteran with more than 20 years of experience successfully building and leading global teams and scaling company.
He joins elastic most recently from Comerica, where he served as CEO and prior to that he was the president of worldwide sales and marketing for BMC.
He has held senior leadership roles with Salesforce simple systems C. A high Travelex and Asap.
I am excited about call joining the team as we address the large market opportunity ahead of us.
I'd like to also tend Justin Hoffman, well, he's continuing contributions and leadership.
Looking back on the quarter I'm amazed at all that the team delivered and our customers accomplished.
It gives me confidence in our ability as a company and community to navigate the current environment.
We continue to balance doing the right things for the near term while planning for the long term.
Our ability to do so is underpinned by remaining focused on fueling rapid adoption and innovation with our free and open distribution model and our continued momentum in the cloud.
Leveraging our proprietary features to widen our competitive mode to drive monetization continued innovation that delivers customer value and drives customer retention and our unified pricing model to help customers grow with flexibility not friction.
I am excited about the future of our three solution on a single extensible stack that can be deployed anywhere.
Nash overview.
Thanks, right Q1 was another great quarter for elastic we once again delivered strong performance on all our key growth and profitability metrics.
Before I get into the results for the quarter I'll provide a brief update on how covert 19 is impacting our business.
The demand environment has been generally thing out as the expected.
On the one and we are seeing strong secular market trends being enough people at customers increasingly shifted spending priorities to digital transformation efforts and distributor business models, and our solutions and enterprise search observable at the end security are well aligned with their priorities.
Hi provided many examples of this.
On the other hand customers are also responding to the broader macro conditions adapting their businesses and scrutinizing all reducing their spending against the backdrop of sharp reduction in overall economic activity.
As we expected sales cycles have been lengthening.
We see that in both new and renewal business at customers Scrutinise spending more carefully and due to the higher levels of approval time before.
Despite the mixed environment I am pleased that we executed very well to delivered strong results yet again.
We remain confident in our strategy, our differentiated product portfolio, our sales execution and in our outlook for the full fiscal year, which I'll discuss than I cover guidance shortly.
Moving to the results in the quarter.
Total revenue for the first quarter was $128.9 million growing 44% year over year as reported or 45% on a constant currency basis.
44% of our revenue came from outside the United States.
We continue to view the geographic distribution as a long term strength of our business model.
Subscription revenue totaled $121.3 million, comprising 94% of total revenue.
The strength and subscription revenue growth demonstrates our continued success in addressing customers needs across enterprise search observable at the and security with a single technology stack and a unified pricing model, which we believe our competitive advantages for the classic.
Within subscriptions revenue from elastic cloud, which is our family of SaaS products was once again strong at $32.6 million growing 86% year over year, both as reported and on a constant currency basis, continuing a multi quarter trend of robust year over year growth in this key strategic area.
We saw strength in both our annual test business as well as among PSS business.
Our feature advantages over competitors are expanding reach and our partnerships continue to give us confidence that elastic cloud will grow faster than our overall business.
Professional services revenue was $70.5 million comprising 6% to total revenue.
As I've said before services revenue can fluctuate across quarters, depending on the timing of projects and delivery.
We also saw strong growth in new services orders in the quarter, reflecting the customer value of our training and consulting offerings, which continue to be enablers of subscription growth.
Moving on to calculated billings.
Calculated billings in Q1 grew 45% year over year of 47% on a constant currency basis to approximately $130 million.
To provide a bit of geographic color. The Americas grew the fastest with strong performance in the federal business, followed by EMEA and many TJ.
At the end of Q1 total deferred revenue was approximately $278 million up 63% year over year.
The increase in long term deferred revenue included approximately $5 million from a multiyear transaction in the federal business that was invoiced entirely upfront and sort of our usual practice of annual billing.
This was that the customers request based on their program budget.
Remaining performance obligations totaled approximately $576 million up 59% year over year.
Although we do not actively manage the business to target contract length contract length was slightly longer compared to a year ago, but continue to be roughly one an appeals on average.
As a reminder, among TSS business has no deferred revenue automating performance publications.
Turning to customer metrics.
As with the end of Q1, we had over 12100 total subscription customers compared to over 11300, such customers at the end of Q4.
Majority if the growth in total subscription customers once again came from elastic cloud.
We also ended the quarter with more than 630 customers with annual contract value above $100000 compared to more than 610, such customers at the end of Q4.
Our existing customers continue to expand the relationships with us reflecting increased spend for existing use cases and adoption of new use cases.
In Q1 on net expansion rate slowed a few percentage points compared to prior quarters, reflecting the macro spending environment I discussed earlier, but remained over 130%.
Overall, we were pleased with our customer metrics as we continue to execute against significant market opportunity ahead of us.
Now turning to profitability, which is non-GAAP.
Gross profit in the first quarter was $98.7 million, representing a gross margin of 76.6%.
We continue to track well relative to our expectations in the near term, we will continue to invest an elastic cloud, which will remain a modest headwind to gross margin overall.
Looking at operating expenses in Q1, we managed our investments in spending ROE as we remain focused on driving top line growth both in lot of investments with discipline.
Our operating loss in the quarter was $4.3 million with an operating margin of negative, 3.3%, which was better than expected primarily due to the strong revenue performance in the quarter.
This reflects the strength of our underlying business model.
The FX impact on operating margin was insignificant as we have natural hedges as we incurred expenses globally at the distributor company.
Net earnings per share in Q1 was six cents using 96.1 million weighted average diluted shares outstanding.
This compares to a net loss per share in Q1 of last year of 32 cents.
Given the significant movement of foreign exchange rates in the quarter, we hadnt accounting benefit related to unrealized foreign exchange gains on some of our intercompany balances, which favorably impacted net income by approximately $10 million any EPS by 11 cents.
I'll point out that although this accounting gain impacted EPS. It had no impact on our operating performance. We expect some of these intercompany balances to settle in Q2 and similar to Q1, we expect no impact to operating performance in Q2.
Turning to free cash flow.
Free cash flow with positive $21.6 million in Q1, compared to a negative $3.3 million and the same period, a year ago, reflecting stronger than expected collections in the quarter and also our continued progress and free cash flow margin improvement.
As a reminder, we look at free cash flow and free cash flow margin, primarily on an annual basis. Since there are both seasonal and timing effects in any quarter, making quarterly cash so inherently lumpy.
We continue to expect free cash flow margin of approximately negative due to negative 4% in fiscal 21 with the goal of achieving positive free cash flow margin in fiscal 2002.
We ended the quarter with approximately $350 million in cash and cash equivalents, we remain comfortable with our cash position from an operating perspective.
Before I move to guidance I'll remind you with the overall framework that we laid out for the year.
As we shared on our prior call we expected that the economic shock from covert 19 would likely create had been calculated billings for a couple of quarters.
We also moderated up basis investments in response to that.
Q1 played out as we expected and we continue to follow up framework.
We expect that covert 19 headwinds may continue in the form of longer sales cycles.
We will stay disciplined in our approach to investing in the near term while gradually increasing the level of investments commensurate with the growth opportunity we see in the long term we.
We plan to invest in all disciplines, R&D sales and marketing and Gionee.
Additionally, we expect continued savings from traveling events, which will be partially reinvested in other programs intended to drive growth.
No we expect our spending these areas to return to previous levels in fiscal 22.
We also expect to continue to drive operating margin improvement demonstrating the operating leverage inherent in the business model.
Turning to guidance for Q2, we expect revenue in the range of $129 million to $131 million, representing a growth rate of 29% year over year at the midpoint.
We expect non-GAAP operating margin in the range of negative 11.5% to negative, 10.5% and non-GAAP net loss per share in the range of 22 cents to 20 cents using between 80 687 million ordinary shares outstanding.
For fiscal 21, we expect revenue in the range of $544 million to $550 million.
Presenting a growth rate of 28% year over year at the midpoint.
We expect non-GAAP operating margin in the range of negative, 13.5% still negative, 11.5% and non-GAAP net loss per share in the range of 83 cents to 69 cents using between 87 and 89 million ordinary shares outstanding.
In closing, we delivered another strong quarter, executing well and delivering growth while investing to address the rich market opportunity ahead of us across our three solutions I look forward to sharing our progress with you as we move forward with that let's take questions operator.
We will now begin question and answer session.
Asking questions you May Press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
And our first question will come from Brent field of Jefferies. Please go ahead.
Thanks shy year, the second KMI Tonight to talk about lengthening sales cycles, and some unevenness, obviously, many many of us.
TECNIS then I guess just gives a sense is this just.
The initial kind of turbulence coming off the customers. They came back in or you are now settling into a new norm or is there something new that Sidling. Then says the sales motion that maybe you havent seen since.
We kicked off.
If you could you can start there would be great.
Yes of course, hi, Brendan Thanks for the question is the first one.
It's not not something new that we specifically for this quarter than we saw once the pandemic hit we started to see customers scrutinizing their standard we mentioned it in the previous quarter as well.
And I like to equated to.
We have a deal that we need to close maybe there's another layer of approvals that we need to go to just causes a natural extension of the sales cycle.
Generally if I take a step back of the three solutions that was focused on enterprise search observe ability and security and they resonate really well with our customer base and hit the Spartan aligned with their spending both in the short term into context of the pandemic.
Ecommerce is a great example of that for example.
But also in the long term, especially when you couple that together with a free and open distribution model.
The tends to do well in such challenging environments.
So yeah, I mean, the sale cycles are slightly longer but nothing to be a non by and we're still seeing the demand that we saw before when it comes to our software products.
And just a quick follow up you called out federal as a assort source of strength in the quarter can you just made comment about what you're seeing in the federal side and on the durability of of of that growth going forward.
Yes of course to first of all our federal spaces I'm always led when it comes to using us in the context of the security use cases I mentioned in a few calls before that.
We are being used even before we actually double down on security use cases opt for nation level defense.
Just thanks to our core capabilities owns providing extremely fast results over large volumes of data and the as you can imagine at 12 Hunter.
Needing to go and get it wouldn't surprise me to have that level of winter activity.
And we've been delivering on that to our customers and actually very very excited with our.
You know very extreme progress if you were within the security markets. When it comes to simplifying ease of use and pre package it's submissions.
Thats continued to reflect itself over the last few quarters, including this quarter arms, we manage due to sign a.
Good deal at least that extends the previous one does that do is exactly where that context.
Thank you.
Sure.
Our next question comes from Tyler Radke of Citi. Please go ahead.
Yes.
Hey, Thanks, and good afternoon International shy.
First question I had the strategic national.
I think last quarter, you told us that we should expect some headwinds on calculated billings in the first half and I think clearly looking at the numbers this quarter.
But overall billings growth was pretty consistent with what you did.
In the full year for Fi 20, and short term billings growth was really strong up in kind of the 60% growth year over year. So I guess is there something we're missing in billings that maybe was a onetime nature.
'cause it seems like we're not releasing those headwinds play out and.
Like I guess I'm just curious if you do expect something there.
Play out in Q2 that maybe we should be aware of thank you.
Hey data thanks to the question so to recap I think the trends or be said, we would we were likely to experience in Q1, that's exactly how the quarter played out and we've talked about some of the covert headwinds and some of the structure more structural secular tailwinds are playing out either from the standpoint of market dynamics. So.
That all played out as we expected in terms of the billings growth.
I get the only thing I'd point out as the things I mentioned in my prepared remarks already where we had the benefit of the of approximately $5 million of long term deferred from a customer that wanted to pay us so for an entire multiyear value transaction upfront. So that's probably the one thing that I would call out as being a little bit different we have some of those every quarter and there is.
Always some some invoicing and ER and bookings differences.
But this one was a bit more sizeable so that's the one thing I probably highlight though.
But overall it was a pretty solid quarter for us and and we're quite pleased with the way the team executed.
Great and a follow up just I wanted to talk on the point into the new head of sales of bringing and.
Appleby plan, just curious on how you're thinking about potential disruption I know that the interim head of sales seem to be doing a pretty good job and just kind of curious.
As you think about planning purposes for the rest of year Theres any type of.
Territory realignments or any any changes that we should be thinking about that maybe.
Leading.
A little bit more conservatism is as you think about the guide.
Yeah, I can think that so personal very very excited to have coil join us as span many hours with him on both on video en masse to mask ER and I'm Super excited I'm having him.
Join our company as I mentioned before we're looking for someone that can come in and get us and build the the next set of foundations as we look forward to scanning the company to a billion dollars in revenue and above so it's not about something tactically that were being challenged where do we have a very strong team.
And very strong leadership team in just in Hoffman and the rest of the.
Of the leaders that we have in the field.
But we're looking to have someone come in and slowly start to build the next set of foundations for our next phase of growth someone that has seen the level of scale that we all know we're going through as a company.
I don't expect any short term disruptions.
In the go to market motion owned in fields, and infield aspects I, just extend continuous additions and evaluations and evolution towards a continuously scalable model.
And Tyler to sort of close that off with the question on the guide shy talked about operationally, we're not expecting any disruption in fact fall below the additive to the team and unhelpful in many ways, but we're not factoring any particular disruptions from the standpoint of the guide and how we're modeling the broad train look I use for the guidance is similar to what we've done.
Previously with the since Q1 paid out according to that framework, we stayed consistent with our approach.
Thank you.
Our next question comes from Raimo Lenschow of Barclays. Please go ahead.
Congrats from me as well shy like can we talk a little bit about the the big CRE product announcement, we saw this quarter I mean, clearly, bringing everything together on another one observed.
Umbrella should help you really nicely and that's where the market seems to be going like.
Talk me through how much of that is it's kind of real real already versus kind of.
Something that's where the product it will evolve into into the future and how much is that kind of already kind of in the in terms of in the market and with your customers as an understanding.
Yes of course too.
First of all in the context, so observe ability we've been investing.
Heavily in clients realize division of observed mobility, where logs application logs infrastructure monitoring or metrics and ATM data application performance monitoring is actually they're actually just different facets or features of a single holistic products.
And we've done I think the hardest part which is over the years, which is putting all that data in a single plays and exposing it to a single you I experience to our user base and now we're basically continuously investing in adding more and more features to catch up on areas that we were less withdrawn like ATM.
I feel very good where we are significant portions of their customers that I mentioned on this call adopted us not only for logging, but also for ATM, which makes me extremely happy about the maturity of the ATM product in our progress in that area I feel very good about where we stand when it comes to observe ability. Although we also have.
Like always like anything with a product ways to improve and ways to make our users not even more simpler and pre package.
We announced in our seven non release, a single unified agent it in preview release or better release. The goal is continues continuously investing this extreme simplification of single agent to install and then one click on boarding of datasets.
And I'm Super excited about the time that we actually using that as the power play with our security solution.
Where we folded our endpoint security technology into the erotic stack with the first milestone of delivering.
Men, where protection as part of the single agent technology.
So.
Both aspects of security Arnold Superability, I'm happy, where we stand and the programs that were made to it and it's a path that we have ahead of us.
Okay perfect. Thank you and then one quick follow up for you how much.
A lot of the calls from software vendors talked about like Glenn yard in the quarter or maybe I can kind of answering that was wrong, but what did you see in terms of progression like you know the comments around the kind of customers being cautious on delaying deals et cetera.
Have you seen like a change in terms of what happened April may versus maybe June July like could you talk to let a little there little bit. Thank you.
Yeah happy to run or so you know the said on prior calls as we entered the month of May we saw continued momentum in top of funnel activity in the month of me and I think that trend broadly continued over the course of the quarter.
But also for US me is usually a slower month because at the first month of the fiscal year end, so and given that it typically slow as we expected the quarter to start to play out that way and a and then expected due to experience. Some of these billings related headwinds associated with cobot 19, So broadly that's how the quarter played out in terms.
You know other trends within the quarter ANAC, how the business actually close there was a little bit of variation, but I would just attribute that to the typical deal dynamics that you see when you have large transactions and they might move by a few weeks here or there. So you know I'd attribute that generally due to timing of larger deals as we close business.
We also had the benefit of strong fed business in the quarters, we talked about already but overall, that's I would say the quarter played out in the team did really well in executing in a pretty difficult environment out there.
Congrats thank you.
Thank you.
Hi, My next question comes from Matt Hedberg of RBC capital markets. Please go ahead.
Great guys. Thanks for taking my questions you guys touched about it in the prepared remarks in terms of geographic performance. It sounds like the U.S. and said was particularly strong I'm wondering can talking a little bit more detail about you know when geography start to open up are you still are you seeing green shoots of improvement.
In buying behaviors.
And just kind of how you think about that progressing across various geographies.
Yeah, It's a it's a great question, Matt It's a it's consistent with what we experienced over the course of the quarter you know at the end of the day some of the headwinds that we see associated recorded 19 are just related to the physical aspects of a cool with 19 with things like Lockdowns and so forth and others are more budget specific in terms of how customers too nice their spending so.
We clearly see see some of that.
Broadly speaking I'd say you know within the U.S., we are actually quite pleased overall on the on the fed business. SMB was also a resilient. Despite the pandemic and you know broadly as the trends playing out over over the long haul I think those are those.
Covert 19 related headwinds will will eventually lift but in the near term, we do see a a similar trend and as I think about our own business as well as we followed things like office opening patterns and so forth you do see a little bit of a change in in a and how people get to work and how they start to work again. So there is a little bit of correlation there.
And that's what the so.
That's great and then maybe.
Over the last 90 days, we've heard some some noise from some competitors you know about changing pricing.
And then some infrastructure capacity I'm wondering if you did it are you seeing any impact from some of those things you know when talking to customers or are you sort of.
You know sort of you know extracted from some of those some of those considerations and script discussions.
Yeah, I can take that.
We haven't seen any impact I'm not recent here this quarter or a quarters before.
The thing that resonates really well with our customer base is that.
When we deliver them along the value of our three solutions of enterprise search observe ability and security they get all of that package in the single technology stack under a single unified plastic model and we've done that she's we started since day one over the last week.
And it's great to see that resonating with our customer base. We deeply believe in in this unified pricing model. We are a search company that looks and data and want to make it useful to our user base and that's through the power of search and we've always looked at our.
Packaging and pricing through that lens and everything else that is built on top of it is has tons of IP and value, but it's a free package aspects around how you take that they don't make it useful within their organization.
Great and last congrats and also at our.
Thanks, Matt I was just going to add but our sales team has also been pretty disciplined about discounting and deal sizes also stayed consistent with what we've experienced before.
Thanks, Josh.
Our next question comes from cash Ragen Bank of America. Please go ahead.
Hi, Thank you very much just to this this complex mix of mcwhorter, having come in better than expected in your guidance is better than expected yet you talked about delays et cetera. So how might that netted all out is it. It's a test I mean this in a very funny way that youre embarrassed that yourself so.
Good relative everything that's going on board and so you have to give those caveats out to our isn't that you actually managed in the past three months to learn how to operate in light of most difficult environments and that as a result of her experience you come up better and so you have it forecast that that feels good to see instances and that the steel voluntary.
Okay and push outs, yes, you have gotten accustomed to it and so therefore, you can provide coverage ratio. So therefore, you feel good about our.
None at all out between that extreme to this extreme.
Is there still some uncertainty out there that that worries here.
Yeah cash, let's say, it's more of the latter we'll never be embarrassed to ER to take credit for for strong performance, especially when the team has worked so hard to deliver well in this environment, but of the core tenets of our culture. Our source code as we call. It is that fair humble and ambitious at the same thing and so maybe that's what you're seeing come through here, but obviously.
If it was a a stellar Q1 from our perspective.
And then in terms of just thinking ahead, obviously on the guide as you noted we raised by more than what we beat.
But we're just calling what we see out there in the market right that we do see these these ins and outs, where you've got on one hand.
Covered 19 headwinds on the other hand, you've got a secular shift that's playing an hour in our favor.
And it just depends on how those balance out of the course of or the next to the next few quarters here. So that's all there were indicating nothing dumping deeper than that.
Yes, it's only meant as a complement by the way ahead and shot [laughter].
Simplified the suite and it's early data points anecdotes to suggest that the suite strategy is playing out as evidenced by maybe million dollar plus deals where customers are not use new just for search but for ATM and security at are starting to see more evidence of as you put it the convergence of buying centers into into big suites.
[music].
First repurchases. Thank you.
Yes, it doesn't give you the simplification of into three concrete solutions has held up, especially when we go and talk to our customers and they can go and decided they want to Peel. The onion. If you. If you will see all the features that are within each and every one of them.
And even better way between the three of them. We just we just released a major milestone in a preview releasing more single agent and now literally endpoint protection is a click away from all of our observe ability users, which is extremely exciting for me in being able to push the boundaries even across our existing solutions.
I mentioned also that many of the customers that I mentioned in the context similar observed mobility. One is now adopted us not only because of logging, but now also thanks to ATM I said to me that shows the maturity of the features are within the observer mobility solution that we have now could you still need to be able to deliver on auto.
That whether you end up bucketing it into three solutions are seven.
That's exactly and definitely when I talk to customers and I just came off an E. B C. Today with one of a major customer that we have under Super excited about division, though we're heading that were painting when it comes to observe mobility solution.
And they are even more excited about the ability to fold security to the same.
The same team and the same efforts.
Got it thanks, so much congrats again.
Thanks, guys.
Our next question comes from Mark Murphy of JP Morgan. Please go ahead.
Hey, guys congrats on the corner at this pension I'm sitting here.
Again from Mark Thanks for taking my questions.
Firstly, Shai I noticed in last discretionary tanking kind of showed that the number of patients that that you filed and issued in U.S. kind of.
Greetings kind of double.
It seems like could you talk about many transactions others, mainly focused on across our troops.
And security and anything to call out that could further increase.
Yeah of course to like any company that matures in its in process. So valving. We we started to file packages for existing technology. They would think its unique for us as is another way to protect our IP, which we care a lot about as you know.
I I won't necessarily call out specifically specific solution, there actually well balanced across.
The three solutions in a big part of them actually goes to our single technology stack that tends to have a features that go across all of the solutions and that's that's another area that we end up patenting. So there isn't any specific density of patent CP world in one area versus another.
Understood, Okay, and just kept can I talked about how can you talk about the.
Net expansion rate I think.
Mentioned something around it slowed a bit yes there.
Many factors that three four or five points and what are the grocery anymore or churn how did that.
During this quarter.
Yeah pendulum so in terms of the net net expansion rate and the change we saw that I'd papers, just a few percentage points, but we did want to flag that for you and then in terms of churn look Q1 was a good quarter for US right. We're pleased that customers continue to see significant value and everything that we offer.
Around our solutions and an update features.
The the lengthening sales cycles, as we said earlier like the both new and renewals.
So deal can sometimes goes after the do data for the renewal, but we've always had some of that dynamic. So we didn't see any big shift in the overall churn rates. So they have not changed meaningfully and I'd say, our gross renewal rates overall were consistent with what we've seen in Q4.
We are a pretty solid on that front.
Awesome. Thank you so much.
Our next question comes from E Com kit of Oppenheimer. Please go ahead.
Thanks, Hey, guys. Congrats on great quarter, a couple from me and one for you shying I'm on the product side.
A lot of going on so first of all congrats on that front I don't know how you manage it all that stuff, but I'm thinking about end game and specifically the adoption can you talk a little bit more about.
In the transition of customers from standard gold and platinum into enterprise, if I remember correctly a lot of damn game features are.
More focused on the enterprise side of equation, how is that helps in that transition and then also if you can comment about our workplace are still has a great announcement last quarter, what has been feedback from customers on that shrunk and I've a follow up.
Yeah of course, the Guy I'm happy to take that so first of all the when it comes to end game, we took the old engage platform and provided that add to our existing your existing endgame customers that need to renew and and very selected few customers a new customers in the case that need.
Endpoint security and their need was.
Was in high demand, but we actually put a significant portion of our investment into folding endpoint security into the stack and that's our focus and that's that's where.
We want to.
We want to get our customers in our users to adopt is through our we just released a first my sense of it it can better. It's only only has the middleware protection out of them you know many other conduction said the existing endgame solution has so I don't expect customers to now moved and mass to our or outside customers move and.
Yes, and that need endpoint protection to our stack, but the good thing is that we set the rails and now the foundations are there and we're going to execute strongly to add.
All the various protections that we have some will then we'll be in pay dearly say under the enterprise subscription.
In order to be able to provide a pool and holistic endpoint security as part of our technology stack.
When it comes to Workday search.
It's still very early.
These last release of seven nine is when we ended up managing to create our free distribution theater for Workday surgery. This part of our typical go to market when it comes to providing.
Low barrier zero gateway adoption when someone wants to download and wonder software themselves in self managed way.
And I would say that were really really early in the into it means that we have we have a selected connectors and.
And and functionality.
And as you see in as you mentioned the team is executing extremely fast in adding one more and more early responses are users.
Really love the extended stay there the one that resonates really well with me is our ability to take a consumer mindset into.
Something that was considered to be a more archaic enterprise search product in use case, which makes me very encouraging about the future now it's a question on execution, adding more connectors and adding more features to provide the breadth of connectivity.
That our users want and expect when it comes to walk research.
Got it and then Gms.
You're talking about the lengthening sales cycles, which is understandable I guess, maybe you can comment on from a from a linear.
Progression for the quarter I mean, it was a fairly consistently longer longer sort of quarter or as you went sort of msds somewhat improved and maybe you could also talk about how the others pipeline look like end of quarter for us to start a quarter.
Yeah happy to a day, so I think what we saw was a little bit of variation across the quarter. So if I think about in two components as I mentioned earlier pipeline momentum continues but all the top of funnel activity is continuing strong in the month of man. Those continued over the course of Q1, and then as I think about how the business close obviously means.
Usually are still a month for us as I mentioned earlier, because it's the first month about fiscal year and then we saw some variation just state based on the timing of transactions and how things they have closed, but I'd say that the the general tone was consistent through the course of the quarter and then with respect to pipeline.
Again, the the top of funnel activities that are that we saw in Q1 have have continued and I think were quite pleased with the momentum that we are seeing that's just a question of how long that takes to now convert into business with a lot longer sales cycles.
Very good like us.
Thank you.
Our next question will come from and email Winski of D.A. Davidson. Please go ahead.
Hi, Thanks for taking the questions just hand on for Andy We've heard positive data points in the channel on data links and specifically elastic we deployed and then as a result, you see improvement and when rates are just splunk.
Yes, I can say that this is shy great question when it comes to generally using us as a data lake we see users using that's definitely in this context what did that.
As greenfield implementation or whether that's against strong core hadoop or are there other solutions.
If you take a few steps back and look at all the information that is being generated by endpoints by hosts for servers. They end up being aggregated into a centralized location and need to the search and then that's very simplistic simplistic terms. We are the best Surgeons search engine out there.
When it comes to specifically seeing higher when rates again strong.
We haven't seen a major shift one way or another we like the fact that when we are up against Splunk typically we already we are already being used thanks to our free and open distribution model.
Sometimes side by side as as a data streams moved from Splunk to an assay.
And overtime, we expect to see more and more we believe in our products we've been living our vision when it comes to observe ability and security.
And we think that we provide a holistic single skew single technology stack external studies that is one of the leading ones in the markets.
Great. That's very helpful. Thank you just one follow up on the durability side, we heard from Canada that large public cloud.
Your customers optimized usage during the May June period, where the resumption in July just curious if you saw any dynamic similar to this play out at your customers.
Oh, we havent necessarily saw the specific dynamics that.
The data Doug mentioned as we mentioned, there's another level of scrutiny that our customers provide when it comes to closing deals and lengthening sales cycles, but at the same time, we do have tailwinds with increased usage and increase adoption adoption for mission critical systems and deployed whether it's on the cloud on Prem.
So we haven't seen that specific dynamics now.
Great. Thank you.
Of course.
This concludes our question and answer session I would like to turn the conference back over to shy Bannon for any closing remarks.
Thank you for joining us today, we're pleased with our first quarter results and remain focused on our long term opportunity. We look forward to sharing more with you at our inaugural analyst meeting later this quarter Chow.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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