Q4 2021 Elastic NV Earnings Call
[music].
Good day and welcome to the elastic fourth quarter and physical 2021 conference call. All participants will be in a listen only mode should you need assistance. Please signal our conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May press. The Star then 1. Please note this event is being Rick.
I would now like to turn the conference over to Anthony of US Cree Vice President Investor Relations. Please go ahead.
Thank you good afternoon, and thank you for joining us on today's conference call to discuss the elastic <unk> fourth quarter and fiscal 2021 financial results on the call we have shut down and founder and Chief Executive Officer International Johnny Chief Financial Officer. Following their prepared remarks, we will take questions on.
Press release was issued today after the close of market and is posted on our website slides, which accompany this webcast can be viewed in conjunction with live remarks.
It will be downloaded at the conclusion of the webcast on the elastic Investor Relations website IR on elastic at C. L.
Our discussion will include forward looking statements, which may include predictions estimates or expectations regarding the demand of our products and solutions and our future revenue and other information. These forward looking statements are based on factors currently known to us and speak only as the date of this call 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. The 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 and slides.
The webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link our first quarter of fiscal 2022 quiet period begins at the close of business Friday July 16.2021 during.
During the week of June 8 we will be participating in the bank of America Global Technology Conference. The Stifel Cross sector insight conference and the Baird Global consumer technology and services conference with that I will turn it over to Shai.
Yeah.
Thank you Anthony Hello, and welcome everyone I'm happy to be here with all of you to day to share our fourth quarter and full fiscal year results. We once again delivered strong performance driven by broad adoption of our offerings and the continued growth of elastic cloud.
In the Q4 revenue grew 44% year over year and we once again, it's still robust customer acquisition and expansion of metrics. We ended the quarter with more than 15000 of subscription customers, including over 730 with annual contract value of more than 1 hundreds of thousands of dollars.
Looking at the full fiscal year revenue grew 42%.
Strong performance was fueled by continued adoption and the differentiation of our solutions and features expansions the new use cases growth across all geographies and increased strategic relevance at all levels of the business.
Companies throughout the world are becoming more digital and distributed especially as they move to the cloud.
And they are generating an ever increasing amount of data the.
The ability to search observed and protect the state is critical to every company's success.
We believe searches the most natural way for people to interact with data and find what they're looking for.
Elastic enables customers to quickly of stroke across any data anywhere anytime from adding a search box to a website to monitoring applications infrastructure and cloud services, and preventing detecting and responding to threats across the organization.
Customers starting to elastic for our deep expertise in creating world class of search experiences across our enterprise search observer ability and security solutions. The appeals into the elastic search platform our single unified the technology stocks.
Now I would like to share some of the innovations. We have made you know of unified search platform.
First I'm happy to share that the frozen dinner at the year powered by surgical snapshots is now generally available day.
It is growing exponentially and our customers must be able to do more than just store it they.
They need data to be easily accessible and always on and fully searchable on a moment's notice regardless of the temperature.
Which searchable on snapshots on the new frozen tier customers can now search petabytes of data in just a minute anytime they want.
They will not be forced to the leaf data to reduce cost with the power to easily balance the speed of results with the cost of storage.
In fact, 1 of the world's largest telecommunications companies will leverage sorts of own snapshots on the frozen and the data to better manage their high volume logging data storage requirements.
The customer started with a free basic tier and needed a reliable and cost effective way to keep up with growing data volumes and during major launch event.
In addition, new business requirements demanded they started on logging data for 60 days instead of 7.
The upgraded to an enterprise subscription to take advantage of the tremendous value provided by search of post snapshot.
Now the customer can more effectively manage the growing data volume in the last day, while meeting their data with retention requirements.
Our differentiated implementation of the chemo and read what we called 1 time fields is also now generally available.
The time fields provide an easy and flexible way to onboard data and make it searchable user.
Users can immediately interact with and in reach their data without you find skilled in 1 click they can switch to the blazing speed of schema on write benefiting from the power of choice and the speed in a single integrated search platform.
Moving on to enterprise search, which power of search across websites applications and workplace.
We continue to build our whole modern church experiences for our customers that are easy to implement use connect and scale of customers continued to grow their digital footprint and generate more and more data, we're enabling them to search everything anywhere. So they can find the signal through the noise.
1 example of this is the deal we closed in Q4 with the major enterprise that enables customers to manage electronics of women's.
They were looking to evolve the search functionality within the platform to give customers the faster and more user friendly way the search across contracts and agreements.
On the power of elastic search capability, the customer is able to meet the growing demands of their customers and scale their topline growth.
In another example of longtime customer 1 of the largest global banking and financial services companies in the world expanded their business with us considerably in Q4 as they look to deliver of elastic technology more broadly within their company.
The customer started with a large hubs of ability of department to power their internal logging and observe the ability center of excellence.
Then on the other groups within the organization so the value of velocity the company expanded with the enterprise search 1 stack, 1 pricing model and the ability to move between solutions. This resonates with our customers. It's gratifying to see how they are growing with us and they realize the power of the law.
I think search gone home.
We're also seeing recognition from industry analysts.
In Q4 elastic was recognized as a challenger in the 'twenty 'twenty, 1 Gartner magic quadrant for insight engine.
This is our first time participating in this magic quadrant and it's exciting to see the rest of the recognition of the innovation in our enterprise search solution.
And we're continuing to innovate in this space with new connectors for workplace search, including a new Dropbox integration and enhanced custom source API now development team can more easily ingest and manage content of any content source, including legacy and custom applications.
Now onto hours of ability solution.
Enterprises continue to expand the digital footprints on most of the cloud on an ever increasing pace the need to observe their applications in cloud infrastructure to keep these complex digital ecosystem available on performing is becoming more and more critical.
Elastic gobs of ability helps the customers by unifying the various types of books Superability day that bike logs metrics and APM places into a single search platform.
<unk> customers to easily monitor and respond to any of that happening anywhere in any environment.
In Q4, we close of the business with a major national home improvement retailer, who was looking to gain better visibility on performance insights into the more than 40 mobile and in store applications.
These applications are used to manage the retail operations across over 2000 locations.
The company chose the elastic over the current provider because we delivered significantly faster speeds and better integration of logs and APM data.
This enabled them to better monitor and respond to events happening in their order management and supply chain management applications.
The sales systems and other digital environments.
We're seeing recognition from industry analysts in the APM space as well.
Last week was recognized for the first time in Gardner's evaluation of ATM vendors and was named a visionary in the 2020, 1 Gartner magic quadrant for application performance monitoring.
And we continue to simplify the ability to onboard any data into Alaska differently, We announced native support for open telemetry, providing even more flexibility for customers to onboard data. In addition to using our unified agent the collect and send data to the elastic stack organizations can now the.
The revenue send the data collected by open telemetry agents to the same elastic deployment.
I'm also excited to share that we announced an expanded integration with Microsoft that featured enhanced support for Asia monitoring use cases, which was just demo during the Microsoft The build conference last week.
Customers can now easily onboard logs and metrics for their Asia services directly in Asia, 2 hour on because of ability solution in just a few clicks.
Moving to our security solution.
Companies are continuing to generate more and more data everywhere and these data plays a critical role in their ability to protect themselves from attack.
Elastic security helps protect companies by making all of the stay at a searchable and actionable from the endpoint to the data center to the cloud.
The unified security capabilities, such as Sim endpoint security and threat hunting in a single search praful equipment analysts to seamlessly prevent detect and respond to threats.
This quarter, we closed the deal with a major real estate developer in Japan with more than 20000 employees.
They were looking to protect the large remote work force using of scalable and easy to maintain solution that offer the simple pricing structure.
Using the elastic security on the elastic cloud on the customer and establish the security Operation Center in just a few months and quickly launch our scheme to drive their security operations.
We also expanded the business this quarter with the major public research University in the U S. The security teams scope. The expanded to include both the campus and the University Hospital the.
Customer had been using our same capabilities under a gold subscription and I'm glad that you're planning on subscription to take advantage of our machine learning and alerting capabilities.
Now, even though the customer's scope has expanded and they are ingesting far more data than they were before they are still able to stay on top of the threats across their entire environment.
It's great to see real world examples of how our solutions are able to flexibly grow with customers, giving them the added functionality they need when they need it.
We accelerated the hunting any investigation with the general availability of analysts driven the correlation powered by EQM. This critical correlation capability, providing the new tackled search experience for practitioners to quickly identify but.
Additionally, we launched supports the central management and deployment of always squares of large and rapidly growing open source project.
This integration allows customers to reach out to host an endpoint and searched them.
The the folding them into our search platform it.
It is useful to the threat hunters security analysts and idea of operations.
Now if I reported comes along for a malicious chrome extension, finding who has it installed across the organization is just the simple search query of weight.
We continued to invest in our cloud offering expanding strategic partnership with cloud providers and supporting customers with a simple worry free and easy to use cloud experience.
In Q4, we closed the deal with 1 of the largest U S retailers of automotive parts and accessories.
We are supporting them in their decision to move all of their elastic usage to elastic low.
Like many of our customers the company has grown with us over time, starting with logging and APM and expanding the security and enterprise search is different groups across the business. So the value in leveraging our platform.
As the adoption of elastic within the company has grown we have recognized the value of our elastic cloud worry free managed service.
We have also expanded on strategic partnership in the first party integration with Microsoft.
The Mers can now deploy on elastic cloud as if it was a native Azure service. They can also ship monitoring data to it if it was a native of Asia service the.
The elastic team enjoys working closely with Microsoft and we look forward to continuing our deep partnership to bring our joint customers the search experience they deserve.
I'm thrilled with the momentum we are building with all of our partners to enable our customers to bring together and understand all of their data no matter where it resides.
Our continued investment across the business drive drive rapid innovation help us bring the best search experience to all of our users and customers and enable us to build strong product differentiation in the market on.
I'm incredibly humbled as I think about all of the people who make it possible from employees to our community customers and partners.
Also I'm very proud to share that in fiscal 'twenty, 1 our elastic cares program raised $1.3 million for charitable organizations around the world and the elastic employees volunteered more than 4000 hours as part of our volunteer time off program.
Moving into fiscal 'twenty, 2 I'm confident in our ability to execute and I'm looking forward to supporting on growing customer base as the leverage the power of search to gain actionable insights from the data.
And looking further forward I believe that we're on our way to becoming a $1 billion plus revenue company in fiscal 'twenty, 3 which style.
And with that I'll hand, it over to June ish.
Thanks, right Q4 was the great finish to the year, continuing our momentum of strong execution against the backdrop of a gradually improving global economy.
<unk> continued to resonate with customers our cloud momentum was strong and we are continuing to invest against the rich market opportunity ahead of us.
Let's get into the numbers.
Total revenue in the fourth quarter was $177.6 million up 44 per cent year over year.
We finished the fiscal 'twenty, 1 with $608.5 million on total revenue up 42 per cent year over year, reflecting strong revenue growth at scale with the.
Very pleased per performance ending the year significantly better than expected given our strong execution.
Subscription revenue in Q4 totaled $164.5 billion comprising 93 per cent of total revenue.
Within subscriptions revenue from elastic cloud was against strong net $51.3 million growing 77 per cent year over year, driven by strong customer growth on usage.
We once again saw strength in both our annual cloud business as well as that must be called business.
Elastic cloud revenue for fiscal 'twenty, 1 was $166.3 million up 80% year over year and comprised 27 per cent of total revenue.
We also parts of another significant milestone as of Q4 out of elastic cloud business now has an annual run rate of over $200 million.
Professional services revenue in Q4 was $13.1 million growing 34 per cent year over year.
As I've said before so this is the revenue can fluctuate across quarters, depending on the timing of projects on delivery.
Moving on to calculate the billing.
Alkylate of billings in Q4 grew 38 per cent year over year to $249 million.
The demand environment in the quarter played out better than expected as we experienced early signs of a recovery.
The quarter's strength was broad based across our 3 solutions, driven by strong new and existing customer growth across segments and geographies.
At the end of Q4 total deferred revenue of $397.7 million up 53 per cent year over year.
The remaining performance obligations totaled approximately $796 million up 49% year over year.
Customers continue to make multiyear commitments to us, reflecting the increasing strategic relevance we bring to their businesses.
Contract lengths remained over 1.5 years on average and what's like the shorter compared to the prior quarter as well as compared to Q4 of fiscal 'twenty.
As a reminder, we do not actively manage the business to a tug of contracting on a multi cloud business has no deferred revenue or remaining performance obligations.
Turning to customer metrics.
We ended Q4 with over 15000 total subscription customers with.
We saw significant strength in customer additions in Q4, driven by new customer momentum for the elastic cloud.
We also ended the quarter with more than 730 customers with annual contract values above $100000 compared to more than 617, such customers at the end of Q3, reflecting continued strong expansion trends.
The sequential increase in customers over $100000 ACB was the strongest in 2 years.
On net expansion rate was relatively consistent with Q3, but the slightly below 130%, reflecting the broader environment.
We also achieved another important customer milestone in Q4.
We now have over 75 customers, but they see the over $1 million versus over 50, such customers at the end of fiscal 'twenty, reflecting the increasing strategic importance of our unified technology stack and the success of our go to market model is the move further up within the enterprise.
Now turning to profitability, which is non-GAAP.
Gross profit in the fourth quarter was $137.9 million, representing the gross margin of 77, 6%.
We manage the overall gross margin well during the year. Despite the increase on the cloud mix.
Looking ahead elastic cloud will remain a modest headwind to gross margin overall as we continue to invest to drive growth.
Looking at operating expenses in Q4, we increased our investments in the business as we laid out in the prior call.
These investments are spread across all functions.
Our operating loss in the quarter was $1.2 million with an operating margin of negative, 0.7%, which was significantly better than expected primarily due to the strong revenue performance in the quarter.
This reflects the operating leverage inherent in our business model.
We also benefited as expected from lower travel and event spending given the pandemic.
Net loss per share in Q4 was 8 cents using 19 million weighted average shares outstanding.
Turning to free cash flow.
Free cash flow was negative $3.1 million in Q4, and positive $18.3 million per the.
We are proud to have the on free cash flow positive this year, yet another important milestone as we scale.
We expect our free cash flow margin to remain slightly positive in fiscal 'twenty 2 as we invest more aggressively to capture the long term opportunity I'll touch on the investments in a minute.
We ended the year with approximately $401 million in cash and cash equivalents, we remain comfortable with our cash position from an operating perspective.
Before I move to guidance I'll briefly discuss our overall trade book for the fiscal 'twenty 2.
We remain very excited about the long term opportunity ahead of US we continue to believe the best parts of capturing the long term opportunity is to further accelerate other investments in the near term.
Plan to accelerate investments in all functions some.
Some of these investments will support growth in fiscal 'twenty, 2 while others will be more long term in nature of <unk>.
Second portion of our investments will be in sales and marketing, where our growth strategy of driving initial adoption and then scaling up to the enterprise remains unchanged. It's.
It's been a highly successful model for us that has allowed us to get the massive reach and scale.
We're expanding our capacity across the Geos and segments as 1 of the scaling of our velocity sales motion to further drive our cloud business.
At the same time, we're continuing to focus on moving further up within the enterprise with the field investments that support our solution strategy.
Our full year outlook also assumes a graduate of improvement in the macro environment weighted in the second half of fiscal 'twenty 2 given.
Given this backdrop and in combination with other investments taking greater hold of Italian <unk>, we expect our calculated billings growth on the second half to be greater than the first half.
Further we remain confident that elastic cloud will continue to deliver faster year over year growth on our overall business given our feature advantages over other offerings and other investments in expanding our reach and partnerships.
In addition, we do not expect the meaningful return to travel and in person events in the first half of this year, but are expecting such spending to increase in the second half of the year.
Finally, we expect cash taxes to be slightly higher in fiscal 'twenty 2 as the scaling the number of other international subsidiaries.
Turning to guidance in terms of our approach the guidance. We continue to look at the number of inputs and guide based on the walk Lino.
What's different now compared to last year is that there is less uncertainty in the broader economic environment. So we reflected the better visibility and confidence in our guidance.
With that context with Q1, we expect revenue on the range of $171 million to $173 million, representing a growth rate of 33 per cent year over year at the midpoint.
We expect non-GAAP operating margin in the range of negative 5 per cent to negative 4% of non-GAAP net loss per share in the range of 13 cents of Tencent using between 91 and 92 million ordinary shares outstanding.
The full fiscal 'twenty, 2 we expect revenue on the range of $782 million to $788 million, representing a growth rate of 29% year over year at the midpoint.
We expect non-GAAP operating margin in the range of negative $5.5 per cent of negative $4.5 per cent and non-GAAP net loss per share in the range of 60 cents of 51 cents using between $92.5 of the $9$4.5 million ordinary shares outstanding.
As we look further into the future we remain confident in the longer term opportunity on our investing towards that.
As <unk> said, we believe we are well on our way to becoming a 1 billion plus revenue the company in fiscal 'twenty 3.
And with that let's go ahead and take questions operator.
We will now begin the question and answer session true.
I ask the question you were of course of the Star then 1 on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing on the keys to withdraw. Your question. Please press Star then 2 at the time of pause momentarily to assemble the rest of it.
The first question today will come from Matt Hedberg with RBC capital markets. Please go ahead.
Oh, Hey, guys. Thanks, great great. Thanks for taking my questions great quarter, I mean lots.
Lots of positives, obviously, the less of the club growth. The I think what was the record new customer add in all of this the $1 billion of fiscal 'twenty 3 of our billion dollar plus fiscal 'twenty 3 targets.
You know I guess, when we sort of thinking about the progress to that target, especially the security is going to be an increasingly papa an increasingly important part of your business and I guess following all of these breaches of it really seems like we have the data problem you know with all of the security solutions out. There you know can you talk about your ability to perhaps consolidate some spend.
Help customers feel even more secure really harnessing the power of the data to maybe make smarter security decisions.
You know of course happy to so far.
1 of the elastic we don't treat datas of problem, but it is the feature and capability that we can go and use in order to better search observe and protect the customers and companies.
And we're happy about the ability to use that statistically with what you mentioned I think that's the critical.
Critical.
Aspects of why why our security product is growing.
As a greater proportion of our corporate operations are tied to a few systems I kind of just the presented with more opportunities to pray on links in critical supply chains.
And we help customers searching observe and protects the all of the data as you mentioned that is generated by all of these systems.
Even last quarter, we relaunched the son of a ransomware protection for example on on the endpoint itself and bringing you know similar protections to the endpoints of the data center into the cloud.
Security is our fastest growing segment within our business observed the ability represents north of 40% enterprise search less than 33 per cent and security represents around 20% of our business now and it's our fastest growing well we treat the all of that at the same data and you know while you observed 1 of protest and resilient that all day.
I'm sort of ability of data can be heavily using the hardest towards better protecting companies as well.
That's super helpful. And then I guess, maybe to sort of double click on that a little further.
Your success in enterprise search it strikes me also that you're on a really good position to help organization with with with the data governance risk really.
The research engine being able to identify sensitive information monitor access to this wherever that might sit of it whether it's on premise or in cloud data stores.
Am I right in thinking that this could be a growing trend for you looking forward.
It's it's definitely something we're thinking towards the long term, though I would say currently the focus that we have with the workplace search products specific needs to be able to easily onboard of any type of SaaS based data.
Focusing on the most popular sources like Google.
Google workplace or Microsoft scared of sources and and sales force. Once we have access to these data and make all of that content searchable on which is critical to work places today as they become more distributed we can actually provide additional value over time for example on who axis theater at 1 time, because we know.
The content, we call it would make the searchable so we know what changed in it because it definitely areas that we're thinking about relaxed the idea of being able to build it on a single search platform, but it's more of a long term implementation for us moving forward.
That's great. Thanks, a lot guys.
And our next question will come from Raimo <unk> with Barclays. Please go ahead.
Hey, Thank you 2 quick questions first Tri Ed you talked a lot about the the benefits from the enterprise SKU that you saw with search of a snapshot of trucks etcetera can you talk a little bit about where your customer base is in terms of adoption of the different skus and and what's the opportunity to kind of move customers to the higher value add services.
And then the other 1 for you if I look at the guidance et cetera, you know the this it's almost the step change because you've been a very very conservative CFO.
And this looks sounds a lot you sound, a little bit better or a lot better actually on the guidance looks very good 1 of the what's the stuff that drives your optimism here in terms of data points that youre seeing out there. Thank you.
Yeah, I'll start with talking about the enterprise SKU, So I'll mention a bit about the history of of the enterprise SKU of a few years ago, we introduced the enterprise SKU.
To provide our on prem or self managed cloud product. So the orchestration product was provided as part of the enterprise SKU as we're starting to add more value to the enterprise SKU advanced endpoint protection capabilities, but really the the most significant 1 in search of a snapshot and were just G. H.
I would consider to be the biggest aspect of it in frozen here. That's why I think enterprise SKU really starts to shine and be more applicable to more and more customers out there, especially on our cloud like on the enterprise SKU is the only recently available on arc now thanks to the search of a snapshot for instance here.
It represents a relatively small amount of business for us.
And I suspect that over time, there would be a 10 wing to it it will take some time as users are starting to see the value of of surgical snapshots, specifically and as we add more features to the enterprise SKU.
Which we believe provide greater value to.
2 customers, we won't see probably more adoption of it.
Thank you.
And raimo from from islands, the bit that IDE.
I'd, just maybe add to that point also is that when we think about the distribution of our solutions across the customer base..1 of the statistics. We've shared before is that the over half of the sort of customers that are more than 100 K E D.
All of our adopted on the 1 solution and then if I think about the million dollar plus customers they've adapted to a more solution so that.
That to me represents the the.
Opportunity that we've got to continue to drive a greater cross sell upsell and and generate much more value from that.
And then.
On the guidance question.
Well you know look the way I'd characterize our guidance approaches as I did in my earlier remarks that.
Q4, and all of the school 21 was the very strong year for us.
Nothing has fundamentally changed though in terms of a corridor approach to how we think about guidance. When we look at a number of different inputs for the we guide based on what we know are those inputs for the 2 for example of the funnel conversion rate the hiring plans productivity ramps product roadmaps.
And of course, the the general economic landscape and customer spending patterns.
And at this time last year, when we were initiating guidance for fiscal 'twenty..1 we were in the very early stages of the pandemic because you'll recall. The next was incredibly difficult back then to predict what the economic impact would be on and how customer spending patterns would evolve so and that's really at that point. It was appropriate for us the guide quite cautiously for fiscal 'twenty, 1 what's different.
For US now the same compared to last year is that there's much less uncertainty customers have adopted the business practices are we know how to work with customers. They are focused on digital transformation initiatives.
And the global economy is gradually improving and so we've reflected all of this better visibility and confidence into the guidance of being provided.
Perfect very clear congrats for somebody that's wrong.
<unk>.
And our next question will come from Brent Thill with Jefferies. Please go ahead.
Thanks, the the billing dollar fiscal 'twenty 3 target is implying roughly 28% CAGR. So you know what's around the 30% for the next couple of years, what's giving you confidence in that that milestone at this point on or kind of unpack what.
What the drivers are in the and the confidence around that target.
Yeah happy to Brent and maybe I can take that.
So I think the the strongest indication for us is that our customers continue to tell us that the spending priorities.
We are aligning with with areas, where our solutions are focused we're seeing significant traction on a number of different fronts. We've clearly through the course of the pandemic demonstrated strong execution and when we just think about the magnitude of the the market opportunity ahead of us and the fact that where we're investing towards.
2 of us capturing that opportunity in the long term all of those indications give us the the confidence that that that's an achievable milestone I think about it.
From a number of different dimensions, including our ability to move further up within the enterprise when I think about how we're progressing quite nicely and cloud we've seen incredibly strong momentum there and just the fact that the underlying market trends and dynamics are playing to our advantage where data volumes are exploding and customers are continuing.
To adopt us for the more solutions and are investing data from multiple sources on continuing to expand their usage of the technology. So it's all of those things that give us the the strength of the and conviction around the the long term future for the company.
And just a quick follow up you'd mentioned you accelerated your hiring pace.
Can you just give us a sense of.
You know on the quota carrying rep side or are you hitting your goals you over achieving what where are you where are you on as it relates to the.
On the build out of the of the go to market.
Yeah. So our Q4, you'll see that we added the across the company and 95 people and that's the faster than the pace of the over the past couple of quarters and are looking ahead. What I'd say is you know if I think about the the investments that we're making broadly in the field.
First off as we went through the planning process and thought about the opportunity and where we want to make investments. It's it was fantastic partnering with ball. He's been a great addition to elastic and it was really great partnering with them as we think about where we need to make those investments looking ahead.
What we also said earlier is the any changes that we make will be evolutionary not revolutionary.
And so consistent with that they're making investments in all areas on the field organization.
We're also investing in the marketing function, which is just a core part of the old girl of go to market strategy. So the investments in sales will be not just in the sales reps that are covering enterprise and commercial and public sector of accounts, but but also in all of the roles of around them that make them successful.
We're also scaling of the velocity model quite heavily as we drive the cloud business forward. So we're investing in all of those areas and investing over the course of all of fiscal 'twenty..2 so we're quite optimistic about the longer term the.
Thank goodness.
Yeah. Thank you Brent.
And the next question will come from Tyler Radke with Citi. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my question I wanted to ask you about the I think record net adds that you saw this quarter.
A little over a thousand new customers I was curious number 1.
If if the majority of of the net adds are coming through in your SaaS business and M. S. N D. D did see of record net adds quarter in the SaaS business and.
Number 2 of just wanted to understand what you think of driving that obviously you made of licensing change that Ah I think.
Was was viewed.
You know pretty pretty positively by some and I'm just curious if that's had any impact on the the record net adds that you saw thank you.
Yeah, Oh this is the yeah, hi, I'll kick us off.
Well, maybe I'll kick us off on and try then you can talk about the licensing piece. So on the new logos Tyler we were quite pleased with the new customer additions in the quarter, especially in light of COVID-19, obviously it was much stronger than prior quarters. We've continued to add many customers both on the loss of the cloud as well as on the self managed on a lot of partners.
New customer additions were in fact in the cloud business, where we've seen a really strong trends as you know we've invested quite heavily in cloud both in terms of marketing as well as partnerships are on the product side clearly the it's really been encouraging to see the results of these of these investments play out.
Maybe shy of I'll, let you touch on the licensing piece.
Yeah of course, so the first of all just in terms of of all of our licensees. The changes are going they're going very well from our perspective, we made the exchange to protect our products the ground in IC and we feel confident about our ability to execute against it.
I remind you that none of our customers were impacted due to the licensing change in out of the free and open tier the vast majority of our users to download ourself on there were already using our proprietary distribution under the elastic license. So there's no impact of the demo as well and we do expect over the long term to see a tailwind towards our cloud.
Business and we're excited about that tactic.
Tactically for this quarter, we haven't been able to correlated directly to our licensing change. We do think that this will play out over time versus on a onetime bump or.
During 1 quarter or another.
Thanks, that's helpful.
I think you talked about the quarter, just seeing stronger macro recovery trends than you had anticipated and you know in the guidance for next year, you talked about stronger second half billings versus the first half kind of implying that they should reaccelerate I wanted to ask you about.
The net expansion rate, which I think remain just below a 130% would you expect that to kind of pick back up.
In the back half of the year of particularly as you're selling kind of more strategic use cases in an on board incremental sales capacity. Thank you.
Yeah, I'll touch on that side on and you're right. In the Q4 was that was very strong for us fiscal 'twenty..1 overall I think turned out to the much stronger than than we had expected.
And you know if I think about fiscal 'twenty, 2 and in the the general outlook.
There's a couple of things that are driving the the billing seasonality, which I'll touch on them.
So 1 of the general thesis, we have the the economic and vitamins will gradually improve globally. Obviously the U S is showing early encouraging signs on other parts of the world of a little bit behind but headed in the right direction. So generally we expect the things will improve in the macro over the course of appear on the second piece is that our investments will will also continue to take a.
Greater hold on 1 of the other pieces, which is a little bit part of our modeling point really is if you think you might recall that also in Q1 of last year, we had a billing benefit from a multiyear deal that we had buildup of front end and that transaction back then had put $5 million of billings into Q1 of 'twenty, 1 and pulled it out.
Q1 of 'twenty, 2 so that does present, a headwind to billings growth in Q1 of this year.
But thinking about the net expansion rate and some of the drivers there again I think the the underlying individual metrics depend a little bit on how that overall business unfolds as I mentioned earlier of the underlying drivers for us remains strong the playing to our advantage with the explosion of data volumes and customer adoption of our solutions.
And just the strong traction we've been seeing you see that in the customer count that's greater than 100, K E V as well which was the.
The strongest data point that it's been in at least a couple of years.
So all of those give us the the confidence in the long term opportunity in view of you'll see how the net expansion rate unfolds overtime I think over the course of the fiscal 'twenty do the.
You know the net expansion rate is the 1 of the metrics that will unfold just based on how the overall business on pools and the overall, we've seen the great strength in all of our expansion dynamics.
Thank you.
And our next question will come from Kash Rangan with Goldman Sachs. Please go ahead.
Hi, Thank you very much the 1 for shy on for generation and Shine with respect to the the cloud as the future of the company do you believe that pivot into the cloud. It's ultimately the I don't want to use the word end game, but the.
I'll come to the company and kind of the problem businesses doing well it was off the 77 per store. So what kind of of opportunity do you see in your installed base to get everybody on the cloud platform ultimately in the future.
I'll I'll stop with that question before I ask Jim that's just the question. Thank you so much.
Sure happy to do so when I look at the our ability to where can we provide the best service for our customers everything else being equal the would definitely believe that our cloud service provide the best service for our customers are we on the creators maintainor than builders of of our products and we know how to manage them well and we know how to build the cloud.
Dedicated features that help for example of scale them automatically upgrade them.
And manage them efficiently.
Almost like a worry and worry free worry free experience to our user base, sometimes they're still in cases, where customers might want to run self managed for various reasons and I'm happy about our ability to go on provided to them and obviously you know during the next few years the immigration happens not every everything suddenly.
Most of the cloud so I'm happy to be therefore on customers as they migrate from on Prem to the cloud I do think that a big part about our cloud strategy is to be the pro customers wherever they are that's why we're partnering with all of the cloud providers and all the.
The only recently, we announced an expanded strategic integration with Microsoft Azure.
And that has been received well by our joint customer base and the Microsoft Microsoft team.
And I'm excited to be able to provide on our products exactly the same experience in exactly the same behavior across multiple cloud providers to provide our customers with more auctions.
Wonderful and once you finished I mean as the company of transitions to the cloud how should we think about how you're going to be managing that you've been fantastic and as a public company managing of expenses.
It wasn't the problem with the guidance and good visibility.
How should we think about how you would be managing through the business model transition if there is.
If there is any transition at all as part of the consideration. Thank you so much and congrats on the quarter.
Yeah. Thanks cash. So obviously, we were very pleased with the cloud performance here in AR in Q4 growing 77 per cent. We also had just a large number of net new customer additions that are that we talked about so I think the cloud strength that you saw was not from from any transitions in the in the customer base of lot of Fabless net new adds of course, we also saw strength on the south.
Managed side of the business here in Q4. So you know as we've said before I think our growth in cloud will generally in the real customer preferences on where that will reside and sometimes customers will move existing workloads to the cloud like they do but the but generally speaking.
On the way, we think about it there's just an enormous opportunity for us to grow our business both on the cloud as well as on the self managed side and on our promise to the customers is that we will help them by being wherever they are.
But a lot of the strength that you're seeing in cloud is actually reflective of the investments that we've made between the marketing side of the house the sales side of the how's the partnerships with the with.
With some of the cloud providers.
As well as on the product side and building out our presence.
1 of the other things that we've also seen is that more customers are continuing to elect the a usage based model that better accommodates the uneven consumption patterns and so that's another factor that's a that's the play as well in fact, you know at this point over half of our annual cloud revenue is now on appeal usage model.
So the way I think about it is that we do think the cloud will continue to grow faster than the self managed business overall, but our opportunity is quite large the penetration rates of the low. So we've still got plenty of room to grow on both the cloud on the self managed side.
Wonderful. Thank you so much.
And our next question will come from Mark Murphy with J P. Morgan. Please go ahead.
Oh, Hi, this is think of them on behalf of Mark Congrats on the corner.
Chad I wanted to talk about of the Microsoft relationship I think you alluded to it when I was trying to understand here I think it's elastic cannot be deployed within the azure console itself.
Does that mean that customers can actually consume measure of credits to buy and use of elastic and.
And is there any.
Go to market incentives in place of fresh air of sellers to focus on elastic.
Yeah, yeah. Thanks.
First of all yes, the answer is yes.
We each of them with the Asian marketplace and customers can take their age of credits in and spend it when.
We then I think it says and of varying level of integration, we still have a bit of road left to go when it comes to providing all of our services on the newest credit credit based system. We're working very closely with the month of sustained to be able to do that and we expect to but the vast majority of our use cases can be done to it when I'm thinking about on Microsoft integrate.
At least from a product perspective, I'm thinking about it in 3 ways. The first 1 is an integrated part of his experience directly in the Microsoft Azure console and now you use or non reading through Asia and deploy elastic on the elastic cloud is if it wasn't maybe as your service the.
The second 1 is the ability to ship data from all of the various age of services directly into elastic that helps us observe Asia and protected and obviously make certain content type searchable on.
So that's also within the Asia concert on Asia experienced you can now ship data into elastic obviously theres the only it doesn't support all of the services yet, but we're working closely with Microsoft to enable that as well and the last part is food billing in the marketplace integration.
And making sure that people can take and spend all of their credits across any type of consumption model and usage model of monthly anvil.
To be able to do that with elastic that part of it can also already do about 80% of of that.
The use case.
Beyond that we're working very closely with Microsoft Obviously every time, we sell the deal with Microsoft We end up benefiting and working very closely with the Microsoft field team our team enjoys working with Microsoft on the Microsoft sales team and we think we have a great opportunity ahead of US I took the.
<unk> tons of value and make any data searchable on Florida joint customers.
Understood very helpful and it's the 1.1 question for you.
On the expansion metric it downtick a bit but I think it's mainly because of the math is there. If you look at the absolute value, which I guess, we cannot see since it's the P. T. M metric is there any of their any degradation are you seeing actually had improved and any qualitative commentary on the gross retention side.
Yeah. That's the great question the pendulum on you're right. It's fundamentally a question on the math on that the net expansion rate because it is on a trailing 12 month metric and it declined a little bit each quarter through the pandemic and its the only now that it didnt capsulate. The full 12 months of pandemic effect because of you. We've just now come up to the anniversary of that so.
So I'd say the net expansion rate was consistent with Q3 and it just moved up a few points as it does every quarter.
You know in terms of the underlying dynamics of the Theres No particular thing I would call out in terms of a true.
Non versus expansion of our up sell generally speaking I think our underlying metrics over the state stayed very similar to where they've they've been in the past.
So nothing in particular I would call out we continue to see customers drive pretty strong expansion dynamics as we've seen I I look at the when I think about expansion I consider not just the net expansion rate the but also the customer metrics out of that are indicative of expansion. So I think of it more on a on a composite basis.
But.
You know since any out of is a backward looking the trailing 12 month average on.
The in fiscal 'twenty 2 of the net expansion rate will probably be in that 120 to 130 per cent range as we start to work some of the effects of out of the math off of.
But as I said I look at all of these as a composite set of metrics around customer growth and expansion in some of the other metrics around customer of a better or more than 100 K E. C V. In more of the million dollars have been incredibly strong for us.
Understood. Thank you.
And our next question will come from Brad Reback with Stifel. Please go ahead.
Great. Thanks, very much on your velocity sales.
The investments that you guys had mentioned a couple of times on the call. If you think theres the opportunity.
With that to get customer growth to grow faster than revenue growth again.
Yeah, Oh go ahead sorry.
Sorry, the looks like audio day, but maybe I can just touch on it and Shai if you've got additional costs. Then maybe you can add to that but as I think about it Brad are you know from a velocity perspective.
There's a number of customer additions that are that we can drive a lot of those are on the cloud side. Some on the self managed side as well.
The overall when I look at the strength that we've seen and in customer additions.
There's a number of factors that are that go into that including the investments. We've made beyond just the some of the of the field investments a lot of those go into the into the product and the marketing side as well and when I think about the overall comparison or are the.
On the customer count versus the the revenue that the generate overall of the company I think over time, you would naturally see that the customers come on board and then eventually start to expand the their usage and expand their spend with us.
It's just the fact of how both of those dynamics play out because you keep attracting more customers that are that have lower initial launch phases, but then they we expand and grow those customers over time, so the revenue on and customer count of competitors and I think just depends on how those 2 dynamics of play out, but we were optimistic on on both fronts and <unk>.
The reset.
That and the outlook for the other would be provided.
Great and then maybe a quick follow up not sure if you'll answer it but.
Should we think about cloud being 50% of revenue in fiscal 'twenty 3 when you hit $1 billion.
Well as I've said cloud will continue to grow faster than self managed for us and we continue to be just super excited by the preference that customers are continuing to demonstrate for elastic cloud. So we won't put a number out there for fiscal 'twenty 3 just yet in terms of what that mix could potentially be.
But we do expect that in fiscal 'twenty, 2 which will grow faster than the overall business and so you'll see the mix in fiscal 'twenty to move up.
Great. Thanks very much.
The next question will come from each of our kids room with Oppenheimer. Please go ahead.
Thanks, a really great numbers guys a couple.
Couple of for me first generic 1 of them make sure that we put the results in the context of also the pre.
This increase you instituted it in February can you tell us how did that affect the numbers themselves are in the quarter.
Yeah, I'm happy to and maybe just as a reminder for a number of folks we had the increase the prices on the enterprise subscription there are back in February.
And look on we've been very pleased with our progress on the enterprise. The overall I think that's played out just as we expected but that said, it's still very early days of the enterprise subscription deal, but there has not been around as long as the the Golden Platinum has and so it's not a large part of the business today and the price increase therefore really didn't have them.
Meaningful effect on on total revenue in the quarter.
That said, we did see excellent customer reception of the sociable snapshots feature and of course, the the underlying security features as well of the embedded and enterprise. So we're seeing great traction on the enterprise overall.
Shall I provided an example of that in his prepared remarks, whether it was the customer who was using only the free version, but became a paying customer directly at the enterprise level given the value that they they see in search of both snapshots and then more recently as you may have seen in 7 doctor of Dnb created an even more compelling value proposition with the introduction.
[noise] of frozen tiers of storage, so enterprise customers, who are on that enterprise subscription tier can now search across those are the cross chosen.
All of Jews, and Coachable snapshots as well so overall I'd say, we remain very excited about the enterprise subscription tier of becoming a more meaningful part of the business over time, but it didn't have much of an effect in Q4 itself.
Very good the then as a follow up regarding your investments in sales and marketing, it's absolutely clear why you'd want to do the well.
Maybe you can help me think about where your priorities going forward are going to be a little bit different any of your priorities looking back with respect to of how you deploy your sales of marketing investments whether it be by region named accounts are you more focused on getting new customers.
Going wider or going deeper you know driving more you know kind of a 6K type of engagements help me think about how the priorities are changing going forward on the sales and marketing side.
Yeah.
Could you take it here.
How do you characterize it as Dinesh said, we have it we're making investments across the board on sales and marketing and customer success.
There's 2 areas that on a very interested about which is the do attitude of our go to market. We want to make sure that we invest heavily in on velocity business drives the land and expand especially on our cloud, especially surrounding ourself on that self service on a monthly business on the cloud more.
More and more of a business of becoming usage based on cloud and we're very excited about it.
Thanks to the fact that we were making it simpler and simpler to the product.
Add more and more data to elastic and the fact that of our pricing model is directly correlated with the amount of data that user of store.
We have strong opportunity to increase it to increase investments in the velocity of business either through marketing or 2 of sales.
The Mers success account executives.
When you go and the other part of it and other side of the equation as we grow within an enterprise as we start to go up.
1 of the things by the way that I find interesting of the security market is that when you gross up within the security space you reach the sea so faster and he would reach the CIO and the observer ability space. We believe by the way that these 2 markets are going to converge over the next few years, while you observed 1 of them with that but we want to build our value based motion and value based.
Selling as we go up to the enterprise to provide all the things that our customers needs.
Got it makes sense the stuff thanks.
Thanks, a day.
And our next question will come from Andrew Nowinski with D. A Davidson. Please go ahead.
Great. Thank you a sort of a splunk put up on some very good strong cloud revenue as well and I'm just wondering if youre seeing splunk on more on the cloud now than you have in the past on the self managed side.
Yeah. This is a shy here all of our experience of what we see Splunk hasnt changed significantly over the past few quarters. Obviously, we are we are we consider ourselves to be 1 of the leaders in deal because of the ability space.
Actually probably 1 of the.
Products needing the space when it comes to realizing the value of the full of sort of ability.
As the single product on a single search experience and we're doing the same thing in security and securities on our fastest growing business a 2 day representing.
Around 20% of our business. So we're very excited about both of them.
<unk>.
In our self.
Self service monthly business, a practitioner of base the opportunity is so vast and typically we're just you know of customers in all of these are starting to adopt the stair and start to use us and we don't see stronger that's much except for when do we start to replace it as we go out with the enterprise on must be Splunk has been around for longer and restart the screen.
The C Splunk more and more and we're very happy and excited about all the above.
About our ability to go into the place Splunk.
Using our superior product.
Okay. Thank you and then I think you called out a absorbability win with 1 of the big or the major home improvement.
The vendors in the market and then you said they chose elastic over the current vendor on what I'm wondering if you could just provide any more color.
Around that who you are replaced or beat and that that deal and why they chose us.
Yeah. It was a relatively well known clearing the NV of sort of ability of market specifically focus on loans of 1 of the reasons why they loved our product is the fact that we take logs and APM data so take the.
All the information that applications generated on the infrastructure generate in the application performance monitoring data on that.
On the applications themselves generate put them into a single search platform that has the unified experience and provides visibility across that we'd actually said the last thing that we don't field technology suite of Superability suites, we build the single product with the single cohesive user experience. We spent the last 2 years.
The heavily in doing that and that's reflected with the customer adoption.
Great. Thank you.
And our next question will come from Koji Ikeda with Bank of America.
Go ahead.
Hey, guys congrats on a great finish to the year. Thanks for taking my questions.
Maybe first question for shy of being new to the story here and with the release of $7, 1.2 and $7..1 3 I definitely see a bunch of new features across the board I was just wondering if maybe you could talk about what you view as maybe 1 or 2 of the features that you're most excited about with the news releases.
Yeah happy to and welcome you know, it's 1 of those it's hard to choose which feature a you always want to you you would want of highlights first of all of it maybe I'll touch on surgical snapshots and froze. The data here I think that speaks into our capabilities as the search platform, where our true solutions the enterprise.
Chips is the ability of the security are built into it that means that you can store years' worth of data Petabytes worth of data at a very low cost of the speed of retrieval is gonna be slightly slower, but that's the opens up a whole grasp of the new use cases that you can do I take the enterprise search now you can use the lost because of.
On email archiving system and make it searchable I take them sort of ability and suddenly you can store years' worth of logs to be able to go on allow others to audit your system.
And if you take security well there as you know the common twice since we see now in the news happens with something called living off the land and that means that attackers of staying around for much longer moving much slower and in order to be able to protect against that you need to be able to store data for much longer obviously and being able to connect the dots.
And search is the best way to connect the dots to connect these thoughts so I'm super excited about the of searching for snapshots of the person here and our ability to provide that.
Also mentioned maybe on talked about security.
We folded malware protection things to our in game acquisitions about 2 years ago into our technology stack, our search platform and only recently the last quarter, we folded on ransomware protection and the ransomware is becoming more and more critical for organizations around the world as you see as you saw just this week and I'm excited about the ability.
To bring this level of protection to the endpoint to the data center to the cloud.
Got it got it. Thank you and just 1 follow up for Jeff Dinesh I was looking at the operating margin guidance for Q1 and for the full year, just just thinking about the transition out of the pandemic of yeah. I was wondering if you could maybe talk a bit about the overall direction of operating margins throughout the year is there any sort of seasonality or maybe abnormal seasonal.
The seasonality because of the pandemic are playing at the operating expenses that we should be thinking about on our models. Thanks. Thank you for taking my questions.
Yeah, no worries so nothing unusual that I would call out in terms of seasonality other than of course, the fact that we will keep adding more of investment as the as the year progresses and then the other 1 that I'll mention is what I thought of it in my in my earlier remarks, as well, which is that in terms of travel and events are were really not expecting.
The pick up in a meaningful way in the first half, but we expect the task will gradually start to ramp in the second half of the year.
Got it thanks, Thanks for taking my glass questions and congrats on a great quarter. Thank you.
Thank you.
And our next question will come from Jonathan <unk> with Baird. Please go ahead.
Yeah, Hey, guys. Congrats on the strong performance I just have 1 question on the security front and at the at it relates to just where you feel you are in terms of maturity for both of the Sim and Edr you you made some comments on the pass about needing some more time to really build functionality features specifically.
Around the Sam before you could really go head to head with some of the other vendors. So I'm just wondering if you could provide an update there.
Yeah. This is the short here.
We feel our Siem solution is mature by now and as we see other players in the market on the set.
Of the features that we have out there to be able to go on to replace them I'm very excited about the progress that we made in the in our Sim solution and also very centered on about the fact that about 2 years ago, we got into the endpoint security market because the market within the C market is starting to converge and we're excited about our ability to go on and and.
The <unk>.
The proof ourselves like the anybody who can provide more security capabilities to our customers that obviously they need.
When it comes to the endpoint security.
We're sitting on the process of folding the end game technology and that as a reminder, was always like the top when it comes to its ability to provide the edr capabilities with folded the malware and now rests on the ransomware into the system. We're planning to do more of the next quarter and hopefully in the next in the following on India.
In this financial year, and basically it will be able to reach parity with the existing Indiana market.
Okay. That's that's helpful. Thanks Shai.
And this will conclude our question and answer session I would like to turn the conference back over to shy of N and for any closing remarks.
Thank you for joining US today Q4 was an excellent ending to an exceptional year and we look forward to continuing the momentum in fiscal 2022. Thank.
Thank you very much ciao.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at the time and have a great day.
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