Elastic N.V. (ESTC) Earnings Call Transcript & Summary

All right. Good morning, everybody. My name is Tyler Radke. I co-head our U.S. software sector coverage here at Citi, and welcome to the final day of our Virtual Tech Conference. We are pleased to have, for the 10:30 Eastern session, Janesh Moorjani, from Elastic. Janesh, thank you so much for joining us. It's good to see you.

Yes. It's good to see you again, too, Tyler. Thank you for hosting us.

Yes. So Janesh, I thought we could just kick off, just going over some of the impressive numbers that you posted a couple of weeks ago when you reported. I think investors were particularly positively surprised by the Elastic Cloud business, reaccelerated over 10 points, grew almost 90% year-over-year, which I think was faster than growth that you saw all of last year. Can you just walk us through kind of what you're seeing in the business? What's driving this big kind of pickup in cloud demand now?

Yes, happy to. So to your point, it was really strong business in Q1 that we saw, and we were very happy with the outcome there. I'd attribute it to a few things. One is that we've been making strong investments in cloud overall, and we've talked about that for some time, whether we talk about investments in partnerships with the likes of Google and Azure or our own organic investments around the funnel generation and demand generation and marketing, building out a greater presence in more locations around the world. I think all of those things have continued to help drive the momentum in cloud. In addition to that, just when I think about broad customer demand and where workloads are going as well as customer preference, I think that continues to be oriented towards the cloud. You've seen that in the industry broadly where a number of hyperscalers have talked about accelerating growth in their businesses or high growth in their businesses. So I think we're also the net beneficiaries of a number of those kinds of customer decisions. And looking ahead, I think that many of those underlying drivers stay intact, and we continue to be quite optimistic about the rate of growth in the cloud business. I think it will continue to grow faster than the business overall, and we will continue to move a greater shift towards the cloud.

Yes. So maybe double-clicking on what you saw in the quarter. Clearly, we have seen the new customers be strong for a number of quarters. I believe you also called out some elevated usage trends or just really strong overall consumption trends within your existing customers. Could you help us understand what drove that? Was this kind of all sustainable kind of longer-term consumption trends that you think will continue to ramp? Or just anything to call out that was unusual from this recent quarter?

Yes, happy to. Maybe to start off, there was nothing unusual. So there were no unique onetime items driving usage, or there was not a small group of users or customers that caused some spiky demand. It was broad-based. It was across our segments, across geographies, universal demand. So it was really encouraging to see that throughout the business. In terms of thinking about new and expansion and usage, to your point, we saw strength in the number of new customer adds. We've seen that for a couple of quarters in a row now, both in terms of the aggregate number of customers as well as the customers, more than $100,000 ACV. So we've seen strong trends in both of those. And the usage trends, as I said, they were really across the board. In terms of how I was thinking about the business when I first laid out the plan for the year for you and for investors, we were, anyway, anticipating that we would have strong usage over the course of the year. It's just that I modeled it a little bit later in the year. And I thought we would grow into it a little bit more linearly. And what we saw was a strong inflection in usage here in Q1, which helped us beat even our internal expectations on usage and revenue, and that's what really drove a lot of the strength in the upside that we saw in the quarter. When you look at the overall Elastic Cloud revenue and you look at the sequential trend that we've normally seen, in Q1, we saw a pretty big step-up compared to that traditional sequential trend. So it just happened a lot sooner than I was expecting. And we're, again, quite confident in the outlook for the rest of the year here.

Yes. So I mean Elastic is a company that has a variety of products, right? I mean you have everything from the Enterprise Search, Observability, Security. Is there a way to think about -- I guess, was one of those categories that the biggest driver in that cloud number. I mean certainly, on the Observability side, right, we saw a really big pickup in revenue growth from Datadog, one of your peers. Dynatrace has put up good numbers. In the major cloud providers, Azure and AWS, have also seen reaccelerating growth. So is it fair to say you're kind of tied to some of those observability reaccelerating trends in your business? Just help us understand, from a product perspective what's driving that.

Yes. I think even from a product perspective, it is universal. The demand trends that we've been seeing across the 3 solution areas have been incredibly strong. And we talked about this a few quarters ago in the context of how this was all impacted by COVID and what's that done to customer patterns and how customers are shifting their spending towards areas, in particular, Observability, Security, which are growing incredibly fast for us. Enterprise Search is growing quite nicely as well. And so we saw it really across the board. I wouldn't say there was a single solution that was behind this. Also just to put that in context a little bit, when people sign up for the cloud service, because we have a resource-based pricing model, and in many instances, particularly on the monthly cloud business, it's a self-serve business, and people will come to the website, sign up, swipe a credit card and be up and running. In many of those instances, we may not even know what the underlying use case is or what the underlying solution is, unless they actually engage with us for some reason, log in a support call or reach out for some kind of assistance. Because if they're just reserving capacity, then we may not know immediately off the bat what the capacity is for. Sure, if they use certain features, if they fire up an APM server, for instance, and we probably know it's related to APM and Observability, but otherwise, that intelligence comes in a little bit later in the cycle as we engage more with them and we go deeper with them. But anecdotally, the feedback that we've been getting from customers, from our salespeople, from all the folks and the community we engage with, the strength has been across the board in all the solution areas.

Okay. Great. So I wanted to talk about kind of the -- your larger deal strength, right? I think you gave a stat around customers spending more than $100,000 of ACV. And that kind of -- that growth rate continued to pick up. I know about a year ago, maybe even longer than that, you brought in some new sales leadership, Paul Appleby. And he talked about, at the last Analyst Day, around some changes to the go-to-market. Could you just give us a sense for how those have played out? And kind of what your pipeline for some of these larger deals looks like as we get into the back half of this year?

Yes, happy to. So Paul has been a fantastic addition to Elastic. He just celebrated his 1-year anniversary a few weeks ago. So he's been in the driver's seat now for a while, and things have gone really well. When he joined, our view was that all of the foundational elements that we need to have in place structurally from a go-to-market perspective, they were already in place, and it was really a question of thinking about the evolution of the organization and the evolution of the coverage model so that we could move further up within the enterprise. And that's what we refer to as our bottom-up sales motion where you've got the developer mind share, which allowed us to get a number of departmental wins, a number of divisional wins and starting to move those up to the group level and call further up within the enterprise. And the art of doing that is to move further up without losing the mind share and without losing all of the things that made us successful with the practitioner community to begin with. And that's where we've been focused. And I think that piece has been working quite nicely for us. We made significant investments in this year, as we entered this year. So when Paul joined last August, he obviously spent a little bit of time learning and understanding the business. And then, together, we drove a pretty thoughtful planning process for this fiscal year, deciding to invest a fair amount of resources into the go-to-market functions. And we've been making those investments. We started to accelerate those investments in the back half of last year, and accelerating those here in the first half of this year as well. And we will continue to invest in the business as we go forward. But as we've hired those people and they're in territory now and they're starting to ramp to productivity, our expectation is that they will start to ramp to higher levels of productivity as we approach the back half of the year. That also means larger deals as we get into the pipeline in the back half of the year as we continue to move further up within the enterprise. So all of that gives us a level of confidence around the back half, and we're really looking forward to how the rest of this year plays out.

Okay. So if I heard you right, you kind of accelerated the hiring back half of last year, and you've almost accelerated, again, from what you've seen here in the first half. And productivity is -- productivity thus far looks kind of in line. Is that the right way to think about it?

Yes. Usually, when we drop people into a territory, we'll measure their productivity quite carefully to make sure that they are ramping well and that we're giving them all the resources and tools that they need to succeed. I think with productivity, the one thing to be careful about in terms of injecting resources into the field is you want to make sure that you're giving territories time to mature as well. If I hired a sales rep and told the individual to go cover 4 banks in New York and then 3 months later, if I hire another sales rep and tell the first person that their territory got split in half, they wouldn't be too happy about that. So you have to give territories time to mature as well, but the underlying model is we add much more sales capacity and we grow the business that way and we divide territories as we go. When I think about very large enterprise software companies, you are familiar with so many of them, they are in your coverage universe. In terms of sales capacity, we are much smaller than many of those companies. And in terms of market opportunity, I think we have an even larger market opportunity than many of them. So to me, I don't feel like we're demand constrained. It's a question of how quickly we can invest and how quickly we can grow those resources to productivity.

I see. Okay. So the other area of the go-to-market that I wanted to talk about is just with the major cloud providers. And I know that Google, for instance, you have very close partnerships there, I mean, really across the board. Just help us understand kind of the maturity of those go-to-market partnerships and anything you'd highlight in terms of momentum at any of those 3.

Yes. In terms of Google and Azure, we've had great momentum across the board with both of those providers. And it goes all the way to the top and all the way down at the field level. So for example, we've had TK Kurian at Google address our internal teams on different occasions. We've got Scott Guthrie, who has spoken at our sales kickoff in a prior year. In fact, he's actually going to be a speaker at our upcoming user conference here in a few weeks as well. So we've got engagement at the highest levels in those organization. And then all the way down at the field level, where it really matters where account teams are engaging with each other, I think there's pretty strong alignment and engagement over there as well. So I think those are working quite nicely. And even on the technical side, in terms of engagement with the engineering teams, as we think about billing integration and making our products natively available in their marketplaces and so forth, I think that whole piece is working quite nicely. So it's a multidimensional relationship, and it's worked quite nicely so far. And there's just enormous momentum around both of those partnerships.

Yes. I noticed you didn't mention AWS. I was curious kind of what you're seeing there, and we can get into the licensing change and the competition angle, but maybe you may just start on the partnership front.

Yes, happy to. Look, I mean, AWS is a multidimensional entity as well, and they've obviously got different parts of their organization. And we have a presence on the AWS marketplace, and customers can buy our service on the AWS marketplace, the Elasticsearch service on the AWS marketplace and get all the benefits of doing that. So we've got that partnership in place. We have engagement and dialogue with them on various different levels, but it's just not as deep as the other 2 at this point in time. And I think a lot of that is because of some of the legacy and history. But from our perspective, we think there's plenty of potential to grow even with AWS. When I think about the footprint of our business, when customers sign up with us, they have a choice of which underlying public cloud provider to run their service on. And a large part of our customer base is on AWS, as you might well imagine, just given their market share in the world of cloud. So we've got a very deep set of commercial commitments to AWS, where we buy their infrastructure and a set of partnership conversations that is just a little bit earlier stage than the other 2 providers.

Yes. Okay. So maybe turning to the competitive angle with AWS. I think it's been 7 or 8, maybe even 9 months since the licensing change was announced earlier this year. What have you seen play out thus far? I mean I think earlier in the year, there were some concerns that the licensing change was viewed negatively by developers, yet we've seen kind of 2 really strong customer addition quarters for you in cloud revenue reaccelerating. So just help us understand the impact that this change has had, both positive and negative, if you've seen anything.

Yes, happy to. And look, as I step back and maybe just for the benefit of people that will eventually listen to this webcast and they may not have the full history, we actually started the licensing change back in 2018 when we started. If you think about all the -- when the phrase open source and what that typically implies to people is that the software is free, but the code is open and you can play with it. That you have a very rich interaction model with the developers that wrote the code, and that it's typically governed by a license in the world of open source. It's an open source license. And what we did back in 2018 is we took all the benefits of open source in the form of those first 3 elements, free code, open code as well as the interaction model and we put that under a proprietary license and most of our innovation over the course of those last 3 years, when you think about things that we've done in security, whether it's SIEM, or endpoint, or APM and Observability, a lot of the stack level features, all of those have gone into the proprietary tier. And so over the last 3 years, we've significantly widened our competitive moat against AWS. And what we -- the change that we made at the start of this year was to announce that we are not going to distribute Elasticsearch and Kibana under a pure open source license anymore. And so it was really the culmination of that 3-year journey. And I think it played out exactly as we expected because we have been planning for this for a period of time, most of our downloads from our website were on the proprietary version anyway. That was our default distribution. So the vast majority of our users were actually not affected by the change at all. None of our customers were affected because, obviously, they are already customers of Elastic. And with respect to customers who are using Amazon Service, they were obviously getting a level of service and delivery from Amazon that they expected. So there was no immediate impact to them as well. We didn't impose any kind of deadline or force some sort of step function change. In terms of Amazon's response, it was the expected response #1 in our playbook, which was that they would announce that they would fork the code, which they did. And it was as of an older version and only the open source features of the older version, not even the full stack. And so they have spent the last 8, 9 months trying to bring that to market, and they announced the GA of that recently and rebranded that OpenSearch. In the meantime, we started off not only much further along in the race in terms of the feature differentiation and advantages that we had, but we had hundreds of engineers continuing to work on newer releases. And we've had 4 releases since then. So our sense is that not only did we start ahead, but we're also moving faster and have great momentum. In terms of impacts that we saw positive and negative, it was not intended to have an immediate step function change, as I said, so we didn't see anything immediate. I think so far it has played out exactly as we expected. On the positive side, I think with them renaming the service, I think that actually clears up marketplace confusion a little bit going forward because I do believe that there was -- there are people out there that may not even have realized that what Amazon was offering was not the true Elastic Cloud offering. And so I think that actually presents a net tailwind to us going forward as some of that confusion clears up. And in terms of headwind and people making a choice to go to Amazon, again, I think what you saw on Twitter and in other places is a noisy minority. And any kind of change like that, there always will be a noisy minority. There was a couple of new cycles, and we worked through it. But the results, as you've seen over the last 3 quarters, have shown we've got great momentum, great traction in terms of number of customers, customer additions, revenue, usage, all of the metrics that we care about.

So Janesh, I think you're telling us that what one person tweets is not representative of the whole Elastic community.

Depends on who that person might be. But if Shay were to send out a tweet, I think that will have an influence and impact on the community. But yes, certainly, there's a few noisy folks out there that tend to have less impact than people might imagine.

Right, right. That's super helpful overview. So I guess to push back a little bit on not seeing anything immediate change, I mean, why wouldn't -- you say that, hey, our really strong acceleration of new customer lands, plus the acceleration in cloud revenue, you've seen over the most recent quarters, like why wouldn't that necessarily be a positive impact from the better awareness and kind of competitive lead that you feel like you've achieved?

Yes. Look, there very well might be some effect of that in there, right? My point is it's just not going to be -- it's not like we put some sort of artificial deadline out there where all customers have to migrate over to our service or anything like that. So there was nothing unnatural from that perspective. And the growth that we've seen in cloud, because we've invested so much in the business, we've got these partnerships with the other folks that we talked about. And we've got the benefits of the licensing change that I think will happen gradually over time. The attribution of our cloud growth into those different sub-elements is practically impossible to do. I think everything helps, but a big piece of it, I think, is a result of the investments that we've been making and the partnerships that we've got.

Right. And we had a question come in from an investor and related to the hyperscalers, the question was, do any of the hyperscalers allow sales reps of the hyperscalers to retire quota by selling Elastic's? In other words, do they -- can they hit their quota by kind of reselling Elastic running on the hyperscalers?

Yes, there is a sales benefit to the account teams on the ground in those partners. That's why they actually engage with us. Usually, the way these marketplace partnerships work for us as well as other vendors is that when a customer spends on our service and they buy it through the marketplace, they'll obviously retire their commitment to us, but a portion of those dollars spent with us also retires the commitment that they've got on the IaaS piece to the cloud provider. And so that's the benefit that the cloud provider actually gets, which then drives all of their internal business metrics, sales compensation, all of those things. So there is net economic benefit to them, which is why their sales team engage with us on the ground.

Yes. Okay. So I wanted to shift to a maybe less interesting topic, and that's a topic of billings. And I think some of the investor questions we got post the quarter, was just around the billings trajectory. And so I think there were a number of moving parts that drove billings growth lower than we've seen for a while. Could you just kind of unpack those and help us understand like what's going on billings relative to the overall business? And what metric we should look at to kind of assess the overall health of the business?

Yes. I've gotten that question a little bit, as you might imagine, over the past few weeks since we released earnings. But look, the way I think about it fundamentally is that we've got 2 distinct motions, there's the monthly motion and there's the annual motion. The -- there's a level of math that one can do to normalize for the $5 million adjustment that we talked about, where essentially you need to remove it from the denominator last year, add it to the numerator this year and that can lead to an adjustment that will get most people to a higher growth rate than we actually reported on the billing side. I think that's a straightforward piece. And to the extent we have such significant onetime items, we do call them out. But the real question that I've -- that a lot of people have been asking me is, how do I think about this monthly cloud business? And does that have an impact on billings, because it obviously doesn't flow through deferred revenue and RPO. And my view on that is at the end of the day, we run an aggregate cloud business. And yes, the monthly cloud business is a great way for us to bring customers on board. It is a distinct selling motion. It's not that we've been driving some sort of substitution in the business where people are moving from one format to another, and one is coming at the expense of the other. We've got pretty significant demand out there, very large markets. And I think both motions can grow and are growing independently and really well. The onboarding motion for the customer is when a customer signs up on the monthly cloud, as their spending grows with us over time and they are willing to make a commitment and get pricing benefit in the form of a discount from making an annual commitment, they can move over to that -- to the annual capacity model. The monthly business for us has increased a little bit over time every quarter. If I think back to pre-IPO around 3 years ago, it was mid-single digits and it's now gradually increased over the last 3 years to about 15% of total revenue. So it's a very small increase when you think about it in any one particular quarter. So the way I think about that is in bringing it back to what's the best way to think about the underlying growth of the business. I look at the revenue. At the end of the day, in my mind, the revenue is the cleanest measure. It reflects all of the different ways in which customers consume our technology. It's the most rules-based. And all of the other measures that one can look at, whether they are reported measures like deferred revenue, RPO or calculated measures like billings, everyone realizes that there is no perfect measurement out there for -- of a SaaS and subscription companies. Billings has its own deficiencies as does every other measure out there. And so if I think about it that way, to me, revenue continues to be the best measure. And then I supplement that with a view looking at all the other measures together. So that's the way I think about the business.

Yes. Got you. As we think about billings, I think a couple of quarters ago, you might have mentioned, just in terms of seasonality, obviously, you have the Q1 dynamic, but I think you talked about second half billings reaccelerating potentially from some of the go-to-market investments that you've seen. Is that still the case? And just help us understand kind of that trajectory for billings throughout the year. I know it's not as big of a focus metric, but just help us understand that trajectory.

Yes, I think that continues to be the case. And I think it's driven by 2 things. One is, as I said, we started to accelerate investments and those investments will largely start to have an effect in the back half of this year. So that will help the billings outlook in the back half of this year. And then the other piece, which is not unique to Elastic, but I think it's more industry-wide, is just as the world continues to emerge from the effects of the pandemic, we will start to see a natural lift over there. I know in the U.S., it feels to us like things are almost back to normal in many different parts of the country, but we get a significant portion of our business from outside of the U.S. and in many other parts of the world, things are still in lockdown mode, things are still progressing quite slowly, particularly in areas like Europe and so forth. And so I do think that we will see a greater lift from all of those things as the broad economic environment improves as well. So those are the 2 main drivers that as we look at the back half of '22 and going into '23, we felt that, that would help billings acceleration in the second half and then that drives revenue momentum into fiscal '23.

Yes. Yes. And I guess related to the business outside the U.S., I mean, what have you kind of seen thus far in the first half of the year? Do you feel like approval times are still a little bit longer? There's a little bit -- just more processes to getting deals closed? Just help us understand what you're seeing there and how the pipeline outside the U.S. has evolved in the first half.

Yes. And I'll limit the comment to Q1, just because we're a little bit too deep into Q2 now. But what we saw in Q1 was very consistent with what we've seen elsewhere in the business and what we saw in the business through the course of the pandemic, which is that all of the customer engagement, the top-of-funnel activity, the demand gen activity, the pipeline activity, all of that continued quite nicely in Q1. And I think there's significant engagement. And I think as you look across the different parts of the world outside the U.S., look at different segments, verticals, there's -- in some places, things are opening up a little bit faster and things are coming back to normal. In some cases, things are still a little bit slower. Smaller transactions on the velocity side, I think those continue to move pretty quickly. And for larger enterprise transactions, I think customers are still thinking about what the impacts of the pandemic might be on their business longer term. But what I've seen is that it comes down very much to what a customer is actually looking at, and it's very deal dependent and independent -- and customer dependent. If I think about a macro trend, I haven't seen anything visibly different. It's -- it really just comes down to what the deal flow is like and what individual customers are thinking about.

Right, right. Okay. So I wanted to talk about the products because I know you -- I feel like every week or 2, I'm getting a new press release on a new product that Elastic's pushed out. I know the product team has really executed well. Maybe let's talk about the 7.14 release. And I know Shay would probably talk to the rest of the session on all that he likes. But help us understand some of the key highlights. I think there was the Elastic Agent and Observability was a big highlight. But how significant was this release, just in the context of all the releases you've put out?

Yes. I think 7.14 is a pretty significant release for us. And I know it's a minor release because it's a .14. But for us, when I just look at the pace of innovation, as you mentioned, it feels to us like every -- we dropped a major and a minor. There's that much innovation that goes into the products. And I think one of the key features for us that we GA-ed as part of 7.14 was the unified agent, which is a critical component for both observability and security. So when you think about the Elastic Agent, customers can simplify data onboarding, faster telemetry collection, reducing mean time to resolution, all of those things. But one of the most important piece is it is a unified agent that allows customers to use it for any kind of data, whether it's security data or observability data. And they can simultaneously monitor processes, while also protecting against threats. One of the examples that I think that Shay provided on the earnings call was one of the world's largest casual dining restaurant chains. And they adopted us, and they're using us both for threat hunting. And they're also leveraging machine learning and anomaly detection, and they're also using us for APM as well as monitoring and all of those in a single environment. And they chose us because they found the benefit of using a single platform that addresses all of those needs across their observability and security use cases. So that's just one example of how that's coming together. And I think 7.14 drives a significant amount of convergence and is the beginning of us starting to drive these kinds of platform transactions, which I think holds just great potential for us going forward.

Okay. So one of the highlights over the last year from a product perspective was -- and I forget which release it was, but was searchable snapshots that kind of gave customers some, I think, more knobs in terms of how they could set up their Elastic clusters and open the door for some new use cases. How have you seen kind of the uptick there of that product? And to what extent do you think that's kind of contributing to the really strong cloud growth that you saw this quarter?

Yes. I think searchable snapshots has gotten just a fantastic reception from customers, right? It allows customers to significantly reduce their spending on third-party infrastructure, and a number of customers saw the benefits of that. We've seen customers either upgrade to Enterprise -- this is only an Enterprise subscription level feature. We've seen customers either upgrade to Enterprise or, in some cases, even their first paying transaction with us is directly on the Enterprise subscription because of the benefits of that feature. So I think that's worked quite nicely for us. But the real power of that comes in when you think about how we combine that with the solutions. So it's a stack level feature. But if I think about this in the context of security and a customer who wants to store data for a longer period of time, and one of the pain points for security practitioners today is that they can only store a few weeks or maybe a little bit more than that in terms of the volume of data, but the threats persist in their infrastructure for much, much longer, and it's historically been cost prohibitive for them to store data for longer periods of time. But with searchable snapshots, if somebody is using us for a SIEM-related use case and they're on the Enterprise subscription, they can deploy end points, they can use searchable snapshots, they can now store data for much, much longer periods of time. So it gives them much better outcomes on the use cases or solutions that -- for which they are using Elastic as well. So that's another example of one of those power plays where we build something into the stack, but it has benefit on -- for the solutions.

Yes. So you talked about how searchable snapshots is only available on the Enterprise SKU. Is there a way to think about how much of the customer base in cloud is now on that Enterprise SKU? I know it's been out -- was recently launched, but I think you've had a couple of more quarters now since the launch. What's the uptake been like there?

Yes. I'd say broadly, it's getting very good reception. I think it's working quite nicely. There's a lot of customers that are deploying the Enterprise subscription tier. But because it is such a recent offering, we launched it only in November 2019 after we acquired Endgame, so it's not even been out there for 2 years yet. So it's still ramping quite nicely. It's still is a -- it's not the majority of the business, it's a small portion of the business, but it's been growing quite nicely, and I think it's just on a fantastic trajectory for the future.

Right. Okay. And we had a question come in, follow-up on the question around the Elastic Agent. But just how much faster can customers onboard data with the Elastic Agent? And can this be a competitive advantage for spenders like Splunk?

Yes. I think it clearly is a competitive advantage because it allows us to really demonstrate the strength of the platform play. So if you've got a single agent, which you're using for monitoring, you're using for shipping log data into Elasticsearch, you're using that to shift endpoint data into Elasticsearch. And from all of these different data sources, all of those data sources pulling through one agent and going in for a variety of use cases, I think it really sets us apart, particularly in those use cases where a customer, like the example I gave you earlier, wants to extend from Observability into Security or wants to extend from Security into Observability. Because in the industry, DevOps is starting to move towards DevSecOps. And observability practitioners are starting to become more aware and starting to focus a little bit more on threat hunting as well. And security practitioners are moving further left. There's a whole movement in the industry called shift left as part of engaging earlier in the software life cycle. And so as that continues to happen, you'll start to see those -- that convergence happen a little bit more. And I think that's where Elastic Agent really shines, because it's a single agent to ship multiple kinds of data.

I see. Okay. You recently made a couple of acquisitions, I think security.build (sic) [ build.security ] and Cmd. Can you just help us understand what these acquisitions are? Or where you see them kind of helping you in terms of building out the product portfolio?

Yes. So maybe just stepping back, fundamentally, we view security as a data problem. And we started with threat hunting capabilities across large data sets many years ago, even before we had a SIEM product, that's what our users were using us for. And that inspired us to invest in SIEM, and that's what we did in -- back in 2019. We also added endpoints. And our view was that SIEM enables many connections to many different types of data sources and that helps further increase the fidelity of the data that we use in the security use cases. So it allowed us to have a much broader view than just point solutions that were focused only on endpoint protection. And that's why we could and still can coexist with other endpoint companies. And then as we move from detection to also being able to take action and protect and have much more of a proactive stance, we added many new capabilities, 7.14 and the Elastic Agent was one of them. What build.security and Cmd allow us to do is they also allow us to protect cloud native workloads at both build time and run time. So we could already protect workloads in the cloud because a lot of the endpoints, if you think about servers, there are endpoints that are deployed in the cloud. So we could already protect a lot of workloads that were in the cloud, both through SIEM and endpoint. But what build.security does is it specializes in technology built on open policy agent, which before a workload joins the cloud and you think about a large cloud deployment, you could literally have hundreds of thousands of workloads joining or leaving. At build time, it confirms the authorization and whether something can -- should be authorized to be run in the cloud. And then Cmd protects those workloads at run time. And so for us, the additions of build.security and Cmd, they complete the picture for us in terms of what we call Limitless XDR. And the reason -- part of the reason we call it Limitless is because it really does feel limitless. I gave you the example earlier about the volumes that data customers can now store literally years' worth of data in sort of a few weeks. And they can search across frozen peers, and it makes it much more powerful than existing point providers that just store limited volumes of data. So that's how those securities come together in our overall security portfolio, how those 2 acquisitions come together. And if you think about -- going back to the point about storing large volumes of data, you think about the ransomware attacks that happened recently, how long those bad actors were in the infrastructure, this is something that sets us apart from a number of other providers in the space.

Interesting. Yes, I mean, it's interesting because certainly, Datadog and Dynatrace, your observability peers as well as security peers, kind of all seem to be investing in this area. I mean if you had to pick 1 or 2 things that you think will kind of separate Elastic from the others long term as you do see this kind of convergence of DevOps and DevSecOps, what would it be? Would it be kind of the data ingestion, the indexing capabilities of the Elastic Stack? How would you kind of talk about that?

Yes, there's a couple of pieces, right? One is in the near term. Many of these other providers are also acknowledging that data really is the center of the universe, and they are finally appreciating the importance of data. You can see that, by the way, in some of the M&A activity that's happening out there. But as we acquire companies and try and board them on, it's really not going to be easy to retrofit existing product on top of the new data architecture. I think that's difficult. It takes a long time to do. On the other hand, we've been building these capabilities natively from the ground up. And our acquisitions that we folded in have been fully integrated. Many of those companies were built on Elasticsearch to begin with. And so what plays to our advantage in the long run is this convergence of observability and security because we were -- we extend across very large data sets. We've got great strength in observability. It makes it much easier for our customers and our users to shift observability right and shift security left, like we were talking about. I think that serves -- that plays to our advantage over the long haul. And it comes back to the idea that you've got a single stack with a unified pricing model and with the speed, scale and relevance that a search engine can deliver. And I know it seems like it's reiterating things that we've said before, but it really does come down to those first principles. And I think that's what fundamentally will set us apart in the long run.

Janesh, thanks so much for joining us today. And thanks, everyone, again for being patient with us through the technical challenges.

Great. Thank you, Tyler. Thanks again for hosting us, and thanks to everyone for their support and their interest in Elastic.