Q2 2021 Elastic NV Earnings Call
[music].
Good afternoon, and welcome to the elastic second quarter fiscal 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your attach tones phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Anthony Lefty Vice President Investor Relations. Please go ahead.
Thank you. Good afternoon. Thank you for joining us on today's conference call to discuss elastic second quarter fiscal 2021 financial results on the call, we have shied, Dan and founder and Chief Executive Officer International Johnny Chief Financial Officer. Following their prepared remarks, we will take questions. Our press release was issued today after the close market and is posted on our website.
I just wish accompany this webcast can be viewed in conjunction with live remarks, and can also be downloaded at the conclusion of the webcast from the elastic Investor Relations website, I Ark done elastic GAAP CEO.
Our discussion will include forward looking statements, which may include predictions estimates our expectations regarding the impact of the Coca 19 pandemic and other information. These forward looking statements are based on factors currently known to US speak only as of the day to this call and are subject to risks and uncertainties that could cause actual results to differ materially.
We disclaim any obligation to update or revise these forward looking statements unless required by law.
Please refer to the risks and uncertainties included in the press release that we issued earlier today included in the slides accompanying this webcast and those more fully described in our filings with the Securities and Exchange Commission.
We will also discuss certain non-GAAP financial measures disclosures regarding these non-GAAP measures, including reconciliations with the most comparable GAAP measures can be found in the press release from slides.
Webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link our third quarter fiscal 2021 quiet period begins at the close of business on Friday January 15 2021.
We'd also like to inform you that we will do virtually participating in the Barclays Global TMT Conference on December 9th and the Goldman Sachs Technology, and Internet Conference on January 12, with that I'll turn it over to shot.
Thank you Anthony.
Glad to be here with every once a day and share the results of our second fiscal quarter. The end of 2020 is upon us and what a year. It has been as we closed out Q2 I reflected on the importance of empowering our community of customers partners and users would the same resilience we strive for as a company we are.
Building a business for the long run a business that is there for our customers today and tomorrow and I feel fortunate to say that I believe we are well on our way.
We had a great second quarter as total revenue grew 43% year over year, we ended the quarter with more than 12900 subscription customers, including over 650 with HCV of more than $100000 I'm.
I'm proud of how well the team executed in an ongoing mixed demand environment.
Delivering a strong quarter for us this can be done alone. So thank you to our entire community for joining us from this journey.
In the quarter it was fantastic to see so many of our users come together during our first virtual incorporateds elastic on global more than 25000 registered accounts for more than 80 countries signed up to participate.
We had more than 300 sessions that showcased how our solutions help customers drive outcomes with data insight and action.
We're pleased to have our strategic partners, Google and Microsoft participate the sponsors and presenters at D., but.
I was especially excited to have Google cloud CEO Thomas Kurian speak about our continued partnership during the opening keynote <unk>.
It's wonderful to have that level of executive engagement.
I was also happy to see so many of our customers speaking to share their stories at elastic on global including Cisco Audi rocket homes, and Wells Fargo, all of whom renewed business with us in Q2 as well.
Achieving this level of engagement on a global scale does it just happened overnight it.
It all starts with the power of our developer community. We earned their mind share every day with openness and transparency as they adopt shape and champion our technology.
Our three solutions enterprise search observe ability and security built on actually built into a single stack make it possible for us to innovate ones and apply everywhere into.
In turn it's easier for customers to adopt one solution and expand to another.
Combined that with the customers power to choose where they run cloud on premises or in hybrid environment.
And the simplicity that comes with a unified pricing model, they are able to grow with flexibility not friction.
And it's all underpinned by the power of search the fastest way to go from data to insights to action.
At our financial Analyst meeting I talked about a few innovations where we've built one India elastic stack and applied everywhere.
There is elastic agent our unified agent, which is currently in better. It allows for data collection across security items from ability use cases in a single click.
Keep on OLED, which became generally available in Q2 delivers powerful intuitive drag and drop visualizations anyone can create with any kind of data.
And then there are surgical snapshots of paid enterprise double feature for storing more data on local storage options like S. Three with the appropriate performance.
It's now available in better in our 710 release I'm Super excited about the value. This capability will allow for our customers. Our journey with this new capability is just beginning.
In Q2, we saw strong broad based demand across our business, then executed well across our diverse portfolio of customers, including the us federal sector and global public sector, but.
The team delivered great results across all of our solutions I'd like to share a few highlights with you.
I'll start with our enterprise search solution, which power search across web sites applications and workplaces, it's easy to use easy to scale and easy to connect.
It helps increase productivity and improve customer engagement.
Creating a consumer experience built for the enterprise.
With day solution, it's easier to find things than to lose them, including your slacks.
Our 710 release for elastic workplace search we delivered more out of the box connectors for more content sources.
In a few clicks customers can search across slack, Google Drive, Microsoft 365 service now and more.
This release also delivered enhanced controls for admin to personalize, who can access what with our paid proprietary security capabilities.
Security capabilities matter to our customers for example, a prominent U.S. government entity close new multi year business with us in Q2.
And they needed granular security controls to surface the right content to the right people for both the public and internal facing applications.
Another example from Q2 word enterprise consumer like experiences being built comes from a leading us Aerospace company.
They renewed business with us because elastic powers the search for their aircraft maintenance program.
This is a vital function that helps the team quickly find parts repair schematic and anything else they need to keep their aircraft flying safely.
To add it to all the goodness, our recently released surgical snapshot capabilities opens up new potential for customers by making application content and historical workplace Records Surgibot.
Want to search across years of email without breaking the bank, we're making this possible by unlocking search across cost effective object storage like S. Three.
Let's turn to orders of mobility solution, which unifies low metric and M data analysis into one place it's easy to use eliminates data silos and lowers meantime to resolution.
This is why customers like Singapore based multinational ride hailing and food delivery company grab renewed and extended business with us in Q2 sales.
They use elastic for log analytics to monitor pickup and drop off logistics analyze the cost associated with waiting time and searched latency across their taxi ride sharing and full day grocery delivery services.
Another example in from Q2 comes from a global payments company, who renewed multiyear business with us a.
Elastic helps the company power multiple use cases from log analytics to M. Two real time business monitoring across high volumes of global transactions with a single technology stack and unified pricing.
And we continue to innovate in this space, adding even more value to our customers in our 710 release, we invested in helping organizations to step into their end users shoes and monitor digital experiences with our user experience app in Q, but.
We've also made it easy to measure against core web vitals that help developers and website owners interpret digital experience signals.
Additionally, we released one click workflows that enable prebuild machine learning jobs to detect common infrastructure issues like Scipio spikes in kubernetes Claude.
And our new surgical snapshots capabilities help keep observe ability data from logs to metrics to traces online and searchable for longer.
In fact, I recently met with several senior leaders at a large us financial services company, who renewed multiyear business with us for low analytics.
They were very impressed by the journey, we're taking with Surgibot snapshots. It can immediately add value to their log analytics workloads by allowing them to keep older logs all line for longer and at a lower cost.
They also see tremendous opportunity with other use cases like Apia.
Moving to our security solution, we made a number of investments in day space with our 710 release security.
Security practitioners, our quit better than ever to stop security types at scale.
New correlation goes help automate detection and prioritization of complex spreads, while reducing alert fatigue.
We invested in helping eliminate blind spots by adding more security from cloud and remote users with prebuilt detection for Asia, Google Cloud and zoo.
And with our surgical snapshots threat hunters and analysts have years of high volume security data stored on object stores like S. Three at their disposal for long term historical search and analysis.
We continue to see customers rapidly adopt elastic for security in Q2, we saw a day, Sweden extension at a global online travel agencies for lodging and reservations.
Even in a challenging environment. They saw the value in investing in a unified security approach that helps them to manage total cost of ownership and focused on business outcomes, while allowing for internal compliance and auditing mechanisms.
And the theme of solving multiple use cases is alive and well after all while you observe why not protect.
Bell, Canada renewed multiyear business with us in Q2 for operations and network security.
Additionally, a large property casualty and auto insurer in the US close new multi year business with us in Q2 for security.
This use case complement their existing enterprise search and observe ability workloads with elastic.
The ability to address multiple business needs with a single technology has been a driver in helping them optimize costs and reduce complexity.
Now to our cloud business, we make it easy to deploy and scale out solutions with the elastic cloud, which is available on a ws, Google cloud and Microsoft Azure there.
The ease of use and simplified management that comes with adopting elastic cloud resonates with our customers.
For example, rocket homes, whose parent company is rocket companies renewed and expanded their business with us in Q2.
They want on the elastic cloud in order to simplify cluster management and get additional value from our eco system of proprietary features.
Sales elastic to power application and storage across massive amounts of property.
Which covered and the current housing market space is literally the name of the game they have to surface relevant results to their customers with remarkable speed in order to compete.
We continue to invest in our cloud offering in Q2, we expanded into new regions, including a ws Mumbai and to Asia regions for Iowa, and New South Wales, we own.
Also announced billing integrations with Azure marketplace make it simple for customers to buy in scale for their use case and consolidate their appeal.
In looking at our company at large we remain committed to creating inclusive equitable and diverse environment for business success in.
In Q2, we announced a program to supporting veterans in technology held a panel at elastic on global on diversity and inclusion and receive third party recognition as a great place to work or women in technology.
We continue to build our diverse and distributed company.
Diversity and being distributed applies to us on many levels from the strength of our customer portfolio to the greater we give our customers to one elastic where and how they want.
Diversity also applies to uniting disparate data sources into a single stack to solve multiple use cases and enable our unified pricing model.
We will continue to be where our users are and will continue to help them solve the challenges they face.
We have a large market opportunity before us we continue to see our solutions align with customer spending priorities. This is validated across industries geographic regions and businesses of all sizes.
As we discussed during our analyst meeting if we look at our customers over 100000 dollar HCV.
Over 50% just use one solution.
But when you get to 1 billion dollar HCV over 75% use two or more solutions.
As a reminder solutions in this context, our enterprise search, obviously mobility and security.
For instance, if a customer users log analytics and M that counts as one solution observe ability not to day.
This shows we have strong vectors of growth to capture the significant opportunity before us.
Taken together all this is key to our resilience now and in the long term I am proud of the team for their strong execution in the quarter I'll hand, it over to Jinesh.
Thanks, Jay and thanks, again to everyone, who joined US on our inaugural financial analyst meeting some weeks ago and for joining us today.
Q2 was an excellent quarter for elastic we once again delivered strong performance on all our key growth and profitability metrics.
During the second quarter, the demand and vitamins remain generally similar to the first quarter as expected. We saw some headwinds from COVID-19 related to overall spending and slightly longer sales cycles as compared to pre pandemic levels offset by Tailwinds and cloud and adoption of our solutions.
Our execution against this backdrop remains consistently strong let's.
Let's jump into the numbers.
Total revenue for the second quarter was $144.9 million growing 43% year over year.
45% of our revenue came from outside the United States we.
We believe our geographic distribution continues to be a long term strength of our business model.
Subscription revenue totaled $134.2 million, comprising 93% of total revenue.
The strength in subscription revenue growth at 46% year over year. Despite the pandemic demonstrates the importance that customers place on our enterprise search observes ability and security solutions.
Within subscriptions revenue from elastic cloud was again strong at $37.4 million growing 81% year over year we.
We saw strength in both our annual SaaS business as well as our monthly SaaS business.
Elastic cloud continues to be a key strategic area for us we have rich feature advantages over other cloud offerings and continue to invest in expanding our reach and partnerships.
We remain confident in continued strong growth in elastic cloud looking ahead.
Professional services revenue was $10.7 million comprising 7% of total revenue as.
As I've said before services revenue can fluctuate across quarters, depending on the timing of projects and delivery.
Moving on to calculated billings.
Calculated billings in Q2 grew 42% year over year to $177.7 million.
In terms of geographic growth EMEA grew the fastest followed by the Americas and then EPG.
Within the Americas, We also saw a strong performance in the U.S federal business during the quarter we.
We are proud of the presence we've built in the federal space and our sales execution in the segment.
At the end of Q2 total deferred revenue was $309.2 million up 54% year over year.
Remaining performance obligations totaled approximately $644 million up 57% year over year.
Although we do not actively manage the business to a target contract length contract lengths for slightly longer compared to a year ago and we're a little over 1.5 years on average.
As a reminder, our monthly SaaS business has no deferred revenue or remaining performance obligations.
Turning to customer metrics.
As of the end of Q2, we had over 12900 total subscription customers and over 650 customers with annual contract value is about $100000.
Our net expansion rate ticked down a couple of points compared to Q1, but remain modestly above 130%.
Our continuing strong customer metrics demonstrate the strength of our business model as customers initially adopt elastic and then grow their spending with us as they extend elastic to multiple projects and multiple solutions over time and as their overall data footprint growth.
Now turning to profitability, which is non-GAAP.
Gross profit in the first quarter was $111.5 million, representing a gross margin of 76.9%.
We continue to track well relative to our expectations in the near term elastic cloud will remain a modest headwind to gross margin overall as we continue to invest to drive growth.
Looking at operating expenses in Q2, we increased our investments in the business as we expected and as we laid out in our prior call.
Our operating loss in the quarter was $1.7 million with an operating margin of negative, 1.2%, which was better than expected primarily due to the strong revenue performance in the quarter.
This reflects the operating leverage inherent in our business model.
Net loss per share in Q2 was three cents using 86.4 million weighted average shares outstanding.
Turning to free cash flow.
Free cash flow was negative $18.6 million in Q2.
As a reminder, we look at free cash flow and free cash flow margin, primarily on an annual basis syncera, both seasonal and timing effects in any quarter, making quarterly cash flow inherently lumpy.
Through the first half of fiscal 21 free cash flow was positive $3 million, reflecting our progress towards being free cash flow positive.
We are pleased with our progress so far this year and continue to expect free cash flow margin of approximately negative two to negative 4% in fiscal 21 and positive free cash flow margin in fiscal 22.
Before I move to guidance I'll remind you of the overall framework that we laid out for the year.
As we shared at the start this fiscal year, we assumed in our model that COVID-19 would likely create headwinds to calculated billings for a couple of quarters and that we would then see gradual improvement beyond that the first half of fiscal two anyone has played out as we expected in terms of those demand patterns.
However, given the global situation with the pandemic. Our current assumption is that the mixed demand environment that we experienced in the first half will continue for the rest of the fiscal year.
Obviously, we were expecting the environmental gradually improved during the second half.
At the same time, our strong execution in the first half of this fiscal year gives us the confidence to raise our revenue and profitability outlook for the full year.
And we continue to increase the level of investment in the business commensurate with the growth opportunity. We see in the long term. We also expect to see continued significant savings from travel events as we have in the first half of this fiscal year I.
I would remind you that we expect our spending in these areas to return to previous levels in fiscal 2002.
With that for Q3, we expect revenue in the range of $145 million to $147 million, representing a growth rate of 29% year over year at the midpoint.
We expect non-GAAP operating margin in the range of negative, 8.5% negative, 7.5% and non-GAAP net loss per share in the range of 16 cents to 14 cents using between 88.5 and 89.5 million ordinary shares outstanding.
And for fiscal 21, we expect revenue in the range of $568 million to $572 million, representing a growth rate of 33% year over year at the midpoint, we expect non-GAAP operating margin in the range of negative, 7% negative, 6% and non-GAAP net loss per share in the range of 40 cents to 32 cents.
Using between 87, and 89 million ordinary shares outstanding.
In summary, we had a strong second quarter and executed well in the current environment. Although we expect continued headwinds from COVID-19 and broader customer spending trends, we believe that the tailwinds of cloud and our solutions adoption position us well for the rest of this fiscal year and beyond we've built a strong foundation from which to capture the tremendous market opportunity ahead of us with that let's.
Take questions operator.
I will now begin the question and answer session to ask a question you May Press Star then one on your attached term.
Okay anything speakerphone, please pick up your hand from before passing the key cash.
Let me try a question please press star from me.
Our first question today comes from Frank sales with Jefferies.
Thanks, Good afternoon.
I'm curious if you could just characterize the demand environment in when you saw later in the corner.
He went through October and.
Curious if anything dynamically has changed for you in terms of.
How the customers are feeling or extra signatures to sign off are you seeing kind of more of the same behavior you've seen.
Earlier in the year.
Thank you.
Hey, Brent this is donation maybe I'll start with that so first off as I just reflect back on Q2, we saw really strong execution across segments and geographies. So we were really pleased with that approach it.
In terms of the demand environment I'd say it was steady it was very similar to Q1 and generally that remained mixed as we expected with with headwinds and Tailwinds similar to what we talked about before in the form of slightly longer sales cycles, but customer spending generally shifting towards areas, where our solutions are very well positioned.
And so we've seen continued momentum in the business our pipeline and our top of funnel activities all patents new it at a pretty good pace throughout the course of the quarter and we also expect that looking ahead customers will continue to be similarly careful as they as they have been in the first half of the.
They will take a similar approach we expect in the back half, but so far the year has played out largely as we expected.
And and we do expect that as I've mentioned in the prepared remarks at the macro we'll see some alone the backdrop to what we've seen so far in.
In terms of linearity and how the quarter played out.
Laid out pretty well in Q2 for us it followed normal patterns.
This is usually a little bit slower in September was a little bit higher a little bit faster than that because of the federal year end and as with any other software company, we have a typically stronger third month.
So we saw play out again normally and and as we as we expected.
But overall it was really strong quarter and we are looking ahead to the back half and and feeling pretty good about it.
And just a quick follow up on federal maybe just give a sense did that exceed or kind of meet your darker expectation any color on the overall execution there would be helpful. Thank you.
Yes, it was a really strong quarter in federal as well.
Got to our team for delivering yet again, the fed business as we know can be EBIT lumpy and our our performance is not always like the federal fiscal year, but.
But despite that I think the team did a remarkable job in fact, we also put in a few million dollars of business that was expected in Q3 and.
And so the team did a really good job on that front overall, we're proud of the way. The team has has delivered EBIT continuing to invest in federal and I'm really excited about the opportunity and not just said, but public sector globally for us.
Thank you.
Yeah.
Our next question comes from line now moving fast with Barclays.
Hey, this is our free cash for for Raimo Lenschow.
I wanted to ask you about New York, New York, who.
Great looks like they've been pretty strong, but your peers are.
Income of those rates.
Fall off.
Some kind of wondering how much of the strength that you're seeing interest is coming from China British Hallmark station.
The reality security.
Hey, pretty this is janeda should be you caught up in the earlier part you mentioned some rate can you just repeat the earlier part of the question.
Sorry, you're on your net expansion rate.
Got it yeah. So I'm happy to talk about that we've got a we've had a pretty strong track record of driving expansion within the customer base and we saw that again in Q2 both.
Both with the growth in the customer accounts over 100, K C D as well as our net expansion rate being over 130% one once again.
The net expansion rate dip a couple of points in Q2, just reflecting the broader demand trends that we referenced both headwinds and tailwinds.
But looking ahead in terms of customer dynamics across verticals.
We expect that the second half will be similar to what we've seen into from top to the verticals that are more adversely impacted by cobot like like hospitality and transportation continued to be soft and verticals that have been beneficiaries spending in areas like E. Commerce continues to be strong.
But overall as I think about the customer dynamics and the impact of a pandemic that can come back and impact new business through new will then expansion that just no growth customers spending more broadly so I'm not discreetly thinking about a specific percentage or number in any of those areas, but just as we think about the business in the aggregate.
We just feel really good about the relevance of our solutions and how well they are lining with customer priorities. At this time, so we feel pretty good about the longer term opportunity we have.
Thank you.
You give us an update on the competitive dynamics around stabs every single day.
Area, how much new having backed security services is helping you win deals.
Yes, I'm happy to take in hindsight here so.
So first of all when it comes from UBS visibility use cases, we feel very good about it we feel we're leading the pack. If you will when it comes to the applicability of the growth day sub superability market, which is the consolidation of multiple markets. Historically from IPO question logs to a P. M. Two in construction monitor.
Right.
We have been investing in it for years.
We have invested heavily on the technology stack single technology stack with two new them as features and not as a product with the unified pricing model and it really resonates with our customer base because they really see the need the outcome is the same day ability to observe the infrastructure and debt act on it whether when something goes wrong sadly sometime oh.
In front of some of the challenges that they might have.
So that's one aspect as you mentioned also though we do see the overlap between I'm sort of mobility and security sales.
New got operational logging, where we started as accounts accompanied where we were it weren't the strongest now.
Every log inventories also security band. So that's why we're investing heavily in the security market.
And we're actually seeing customers being a new users being really excited about the ability to each week observe ability to ask security data and incented. They can do it extends to our investments in a single technology stack the kinds that everything is stored in the same place that youd weaved into these new data sets, whether you talk about them as from Citigroup.
Security using a single search query that's extremely powerful and.
And that's what we're delivering to our customer base and and and it's reflected by the adoption of our software.
Thank you and congrats on the great results.
Thank you. Thank you.
Our next question comes from Mark Murphy with JP Morgan.
Hey, this is essentially on behalf of Mark Congrats on the results from result, and thank you for taking my questions.
Hi, I just wanted to ask you about.
Skin on Reed, we have.
I've always heard that scheme on Reed as something that Splunk into more has an elastic does not have and net.
That kind of.
Sales in a better ease of use for those platforms, but services elastic, but now you have a scheme on reed so how how should investors think about that I mean do you think it elevates the ease of use of the platform. This is this is competition and makes it much more consumer moving toward non developer audience or what does it actually increased.
The latency force.
Yeah of course happy to touch on it so we announced our investment team scheme on Reed, we called them runtime fields.
In our elastic consumables conference I'll, just mention that we haven't really sticky at a.
Slated to be released and then mature over the next few quarters I was very excited about principal about which feature because.
We are implementing it in a way that is completely seamless to the user and they can go and use gates fields to carry on if you will.
Whether they are index and scheme on right and whether they are being done on range and then with a single click be able to transform it from scheme on region scheme on right.
When it comes to our investment teenage we'd start always from fast it's easier to start passing goes from lower it's really hard to start slow and go fast. So we always start with fast we start with class when it comes to scheme on right now I would say that we've been.
Innovating quite a bit when it comes to our investment share.
We index everything by equal it it's magical like no other system does that and it's reflected in how fast we are.
But we can give our users that flexibility in which came on we do give them even more flexibility to make that choice between indexing everything by default versus being slower by doing it every time and that can help some usability aspects and ease of use of course, but we still deeply believe that scheme on right.
The facilities that we provide provides the best user experience when it comes to see easily viewed dashboards being loaded in a snap to add hunter is being able to find attacks in milliseconds and out of complete boxes responding as you type and not you know not having to wait for it.
That's one of our powerful aspects I will add a beat on a technical level of debt I think it's an interesting aspect and we also announced a surgical snapshots. That's the ability to store. The same data the same structures that we have in elastic search not on EPS is these and obviously provides new snapple responses.
Our own cost effective measures like S. Three and object storage and the fact that we have scheme on right and as you know the two these more cost effective optic stores, even though that's going to be slower due to the fact that it's not you know ssds, it's still going to be considerably faster compared to.
Any other system that is doing something similar on something like S. Three so scheme on right reflects itself and the and the benefits of it reflect itself not only on how fast it is for hot potato for snappy dashboards, but also how cost effective it is when it comes to long term storage.
Understood. Thanks.
Thanks for that explanation and Genish. One quick question for you when I'm looking at the guidance. Obviously you did you came in well above your guidance. This quarter are you came in well above last quarter.
But the guidance in the back half seems like calls for a day slowdown, but it seems like you're saying that the environment that you saw in the first half would be similar in the second half so I'm trying to.
Kind of put both of that together maybe the question is I mean, what surprised you positively in the first half and in the October quarter, but what your guidance was but what were you expecting and then what gives you caution into second half for.
For that slowdown to happen.
Yeah. It's a great question overall as I step back and think about the first half we executed really strongly and that was I think one of the main drivers for the over performance that.
But we delivered.
In the second quarter as well, we also saw strength in Psas overall and that included the Monte SaaS business, we saw a little bit of stronger quarter over quarter growth in the services revenue as well, but you know as I step back and look at the back half of the year you know.
Despite the success that you had here in Q2 across all dimensions, and we are really proud of that what we see out there is that the demand environment continues to be unchanged, you'll recall that at the start of the year. When we first laid out our guidance. We had said that we would if we were modeling the second half of the two day.
Improve and at at this point, we're just expecting that that will stay status quo in terms the macro backdrop.
So we've seen customers continue to spend with US there are very comfortable with the way our solutions are aligned.
They are our priorities, but it does take them a little bit longer to get them. There. They are a little bit more more thoughtful about that and sales cycles as we expected we're.
We're a little bit but longer similar to where they were in the prior quarter. So all of those factors weighted into the the thought around the Q2 guidance excuse me that the back half guidance, but as I said, we've raised the full year by quite a bit most certainly more than the Q2 beat so effectively weve actually raised the back half of the year relative to the price.
Our expectations that we had and that just reflects the the performance that we had in the first half. So overall, we think that the guidance for the back half suitably balances the near term opportunities as well as the near term risks and we are confident in the outlook for the year and and quite excited about the bump from opportunity set that we have.
Great. Thank you so much.
Yeah.
Our next question comes from Mt, Holly Bank with RBC capital markets.
Hi, It's Dan Bergstrom from Matt had first thanks for taking our questions. So new customer additions took to protect backup nicely this quarter versus the first quarter and on top of the funnel has had remained strong you called that out the number of crews that out. It's just this is just seasonal strength here in the second quarter are there more specifics around the higher number of new customers from.
Just last quarter.
Yeah, we were actually quite pleased with the new customer additions that we had in the quarter, especially in light of Ur COVID-19 it.
It was consistent with prior quarters, we will continue to add many customers on both elastic cloud as well as in our self managed business.
In terms of trends that we saw in the <unk> in the quarter and again it was a pretty clean quarter, you know straight down the middle of the same way in terms of a new customer adds value. We're quite pleased with that a lot of our new customer adds were on the lumpy SAP business were also we saw a pretty consistent trend.
Nothing specific to call out in terms of seasonality I think we just continue to execute the playbook that we have and a sales team continue to do a pretty remarkable job bringing business home.
Great. Thanks, and then maybe could you talk a little bit more about the opportunity in the installed base you know, what's what's driving new product adoption for customers and then what would help or is driving adoption of multiple product categories for those 100000 type PCB customers. How does how does that work more towards the levels of the the million dollar plus.
You see big customers.
Hey, Sean here happy to take so first of all our go to market relies heavily on what we call bottom up adoption model, we communicate and engage and ER and work with the creator class the developers E quite hunters new security practitioners are the people that go.
And you know hands on keyboard to go and implement a search box on a website or make sure that the infrastructure stays up because you know they're at their salaries on income or Devops make sure that they're going to try something like an implement the rights that would've been can't income.
Company level of security that has committed to do that.
And add that adoption happens and it's important to know that that adoption happened. Thanks to value I think they go they use the software there's many products around it but.
But they choose us thanks to the value that it brings to them and those are the people that are actually hands on keyboard doing the work we started to growth and you know they deployed from cloud or download and run our free and open distribution and then they start to adopt us through it as we grow we growth in multiple factors. The first one is.
As you know contracts become mature we start to use more and more within the projects more data gets aggregated to it.
And then thanks for that movie sources are being used on our cloud for example, and then we grow with the customer.
He also sometimes grow because the same use case for example, logging is being used not only from one application for a buck from multiple applications. So that's another factor of growth that we love.
We get growth, we see growth because someone decided uses for logging now decide to do this for ATM debt has matured significantly over the past two years, and we're very happy with where interest where it stands and we start to see the adoption will be a spike up as well and that's exciting because we can provide.
The user you know more value from what they spend with us and our value is associated with growth that they have.
All of that by the way is enabled by the single technology stack and clinical experience that they have like moving from logs to ATM is a single click and that's exciting price and.
And then from there they can move from one solution I could you have the ability to a more solutions across the company.
And that can be either security or enterprise search for example, or vice versa. That's.
So all of these are veterans of growth and those drive the growth for us typically from 100, K. HCV customers, we see them. They tend to most new use a single solution, but I'll remind you that even within a single solution he might be that they're using logging in ATM and other considered them to be different ones.
But then as we get to a million dollar based customers will start to see them adopting us from more than one solutions across the company and that's exciting for me because it's still the same to same environment say may be I say, new I extend user experience and same pricing model and they're just they're very excited about the ability for us to deliver for the more for the C.
Same day.
Same investments that they made before.
Great. Thanks, so much.
Sure.
Our next question comes from Tyler Radke with Citi.
Hi, good afternoon, it is destroying value.
Selling force today I have a quick question on like competitive say looks like Splunk missed their numbers today, starting now as like some of the growth decelerating rapidly. Meanwhile, for you guys is growth in holding steady and if not like going up like have you guys seen anything shifted.
Compared to the same what this clown product.
For the quarter.
Yeah journalists wassa that competitive dynamic with Splunk remain the same yeah, we're very happy with where we stand in the two fronts that we tend to see Splunk.
Well, they can be low gain market or the IPO pushing logs that has you know evolved too and observe ability solution and in the security market, where our seem efforts as I am.
Efforts.
Have matured with GA the product and we believe that in the next few quarters, who actually have the full feature set to do wholesale replacement is going to come back, but we're being adopted as you noticed in our earnings call we did already.
So in that aspect, we're very bullish about the capabilities that we have I think we're ahead.
Ahead of the pack when it comes to really treating a single unified product with a single unified pricing versus a combination of multiple products and multiple user experiences.
We hear that reflected with our customer base, they're super excited about the new mission that we continue to deliver not only within observe ability and security, but also being able to invest in endpoint security for example in the security market and start you pulled that into debt stack with our end game acquisition and also with our continuous innovation to be able to give them the right level.
Levels and levers of choice, whether its which came on reed that was mentioned before or the ability to store more data a cheaper cost on objects doors like asthree. So all these innovations are just amazing and the team is delivering on products that ended up delivering value and that's reflected in our adoption in the <unk> and the customer reactions to it.
Yes. Thank you I also wanted to touch on the margin question. There. It looks like you guys are.
Going down way faster than before as.
I just want to see how how should we be thinking on the cadence of the margin going back for next year, if you're going to see if day here and go back up or how are you guys can see him next thanks.
Yeah, Hey, using so you know talk a little bit about our investment philosophy for for this year in terms of thinking about it for next year, we will talk a bit more about that when we when.
When we are ready to talk about fiscal 22, but you know at the start of this year, we deliberately had slowed the pace of investments as you are in the early months of pandemic, we talked about that back in Q1, and then we decided to continue to increase the pace of the investments which is what we said we would do and that's exactly what we have done here in.
The second quarter, and then looking out over the back half we will continue to invest quite heavily in the business, adding people across all functions as we continue to to invest for a full scale and to drive to.
To drive growth, even more a more into the future as the prosecutor along with their market opportunity broadly speaking when I think about it the the signs from our customers is that their spending priorities are lining well to our solutions. So it makes sense for us to continue to increase the pace of investment in the business in that direction.
I'll point out that the strength that we saw here in Q2 on the operating margin was really a function of the revenue beat and we continue to invest as we had said we would so despite the headwinds that the we sales from the pandemic. We think it's important for us to invest through this pandemic so that on the other side of this will.
We'll be even debt position to capture the longer term opportunity. So we'll.
We will continue to execute here in the near term and then talk a little bit more about EPS by 22 a bit later.
Hi, Thanks, Congrats on the results.
Thank you.
And again, if you have a question. Please press Star then one range.
Our next question comes from two large ironic with Oppenheimer.
Hi, Thank you for taking my question I can ask just following up on your comment about continuing to find the best maybe can you give us a broad feel about your hiring plan and you know where you feel that youre doing most of the additions to that kind of balance between R&D and sales.
Yes, I think stepping back as I look at the strength, we've seen in the first half were investing across all functions that into investing in sales to drive coverage and near term growth that includes investments in R&D to drive.
The write up product and long term growth as well as investing in the DNA functions for scalability and marketing is a big part of our go to market investments as well.
And so as I step back and think about the the overall approach we've taken a ground investments we've proven that we can be nimble in hiring and dial the level of investment in the business were continuing to do to do that looking ahead.
You know as we think about the back half you will see us investing both on the on the R&D and the go to market functions as well as investing appropriately in and you need to secure scale scale for the future. So its really across the board if.
If I think about it in terms of geographies as well, it's a it's really a distributed reflecting the opportunity that we see.
You know from our perspective, the the demand environment is over 90, new the universal global phenomenon and and the longer term demand that we see as well the market opportunity, we see as well as global So you continue to invest globally due to prosecute that.
Yeah. Thank you and Shai can you maybe share some perspective on how you feel about the evolving capabilities from a GAAP U.S. and other cloud service providers and kind of the the balance of competitive.
Alex versus you know the health of the partnerships.
Yeah of course.
I mean, I'll start with saying that our strategy when it comes to cloud is to run on all three cloud providers NWS, Google Cloud in Asia, we integrate native the weighted.
All three of them and we have very strong partnership with Google Cloud and Microsoft Azure and even double down on these integrations are with them. So we're very happy with the with the integration that we have with all of them and and obviously with the capabilities of our products as you can imagine our.
Areas are at the forefront of the needs of companies, whether it's the ability to put a search from Fox on a website on a low place there, but it just takes a search box and put it on the infrastructure to serve it well the ability to take up the ability to take a search box it put a new company to protect it.
And we feel like we're ahead of the pack on all three when it comes to the maturity and the.
Future readiness of our products and that's reflected I think by the usage of it and the fact that thing that we provided across all cloud providers as well as on Prem and the ability to run hybrid across it with a single search request to be able to search across all of them. If you want to as a customer that resonates really well with our customer base and and and.
Very happy about it.
Thank you.
This concludes our question and answer session and I'd like to turn the call back over to shy banning for any closing remarks.
Thank you all for joining US today Q2 was an excellent quarter for elastic we continue to see customer spending priorities align with our solutions and a large market opportunity ahead of us.
I look forward to catching up with you in the near future stay healthy stay safe I appreciate you joining us channel.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.