Good afternoon, and welcome to the Elastic Second Quarter Fiscal 2020 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Anthony Luscri. Please go ahead.

Thank you. Good afternoon and thank you for joining us on today's conference call to discuss Elastic's second quarter fiscal 2020 financial results. On the call, we have Shay Banon, Founder and Chief Executive Officer; and Janesh Moorjani, Chief Financial Officer. Following their prepared remarks, we will take questions. Our press release was issued after the close of market and is posted on our website, where this call is being simultaneously webcast. Slides which accompany this webcast can be viewed in conjunction with live remarks and can also be downloaded at the conclusion of this webcast on the Elastic Investor Relations website at ir.elastic.co. On this call today, our discussion may include predictions, estimates, or other information that might be considered forward-looking statements within the Safe Harbor provisions of the U.S. federal securities laws. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include those set forth in the press release that we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission, including our forms 10-K, 10-Q, and 8-K, and other filings we make with the SEC from time to time. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results or any revision of these forward-looking statements in light of new information or future events unless required by law. In addition, during today's call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from GAAP measures. Our non-GAAP measures exclude the effect on our GAAP results' stock-based compensation, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, acquisition-related expenses, and non-GAAP tax rate adjustments. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in the press release and on our Investor Relations website, and the slides accompanying this webcast. The webcast replay of this call and slides will be available for two months on our company website under the Investor Relations link. With that, I'll turn it over to Shay.

Thank you, Anthony. Hello, everyone, and welcome to the call. It's great to be here and share the results of our second fiscal quarter. In Q2, revenue grew 63% year-over-year on a constant currency basis. We had more than 9,700 subscription customers at the end of the quarter, which included over 525 with annual contract value of more than $100,000, and our net expansion rates continue to be over 130%. Before Janesh covers our financial performance, I'd like to talk about some highlights in the quarter, and there is no better place to start than with security. In Q2, we completed our acquisition of endpoint security company, Endgame. We also announced our new product, Elastic Endpoint Security. This product integrates what we consider to be the best endpoint protection from Endgame with the best search technology stack from Elastic for a new breed of threat prevention, detection, and response. Its package is a single autonomous agent that's easy to use and built for speed and scale. It's also one of the only products on the market designed for hybrid environments, so you're protected even if you're not cloud connected. Elastic Endpoint Security is available today under the Elastic license as part of our Enterprise subscription. It's been validated by many, and recently excelled at third-party tests from AV-Comparatives. It's also tightly integrated with our free Elastic SIEM product, which is also under the Elastic license. Additionally, we announced the end of Endpoint pricing. This aligns with our overall pricing and packaging model. No pricing per host, per agent, per seat or data ingested, just pay for the resources you use. We've invested in this approach because it promotes growth with flexibility, not friction. Our customers aren't constrained by their success as they ingest more data. Instead, our model is aligned with the value our customers get from our products, and we've built trust with our customers as we continue to engineer features that help them be most efficient with the resources they have. This message has really resonated with our community. At our Washington, D.C. Elastic{ON} Tour event, I heard from many CIOs and CSOs who were excited by this. They're often used to vendors asking them to pay more without getting more value in the process. At Elastic, we focus on providing more value to customers with fast, easy to use, scalable technology that allows customers to grow with us. For example, Texas A&M University is a security customer of ours. The speed and scalability of Elastic Endpoint Security has allowed them to drop their meantime to threat remediation from seven days to 30 minutes. To them, the combination of Endgame's endpoint technology with the capabilities of the Elastic stack is a compelling way to simplify and automate their security operations. We see similar benefits coming to our customers as they harness the ability to stop threats with Elastic Endpoint Security. Another example is Barclays. They've been a customer of ours for years, and powered their enterprise search and observability use cases with Elastic. More recently they've explored utilizing Elastic Security to enhance their security estate. To further accelerate our efforts in the security space, we formed the Elastic Security Team, which combines our Elastic team and the Elastic Endpoint Security engineering work. Nate will lead this effort as the general manager, and I have great confidence in how he will lead and guide the team. The combination of our security efforts is similar to our approach with observability. We've developed these products in concert on top of Elasticsearch and Kibana. We build on top of a single technical foundation, which gives us a strategic advantage in the market. Many of our peers cover multiple products built with different architectures. Building on one foundation, as we've done at Elastic, gives our users a more integrated experience. For example, the machine learning jobs you run on your log data are the same ones that you run on your APM or security data. Another example is Kibana Lens, a new feature we premiered in our 7.5 release. Lens is available under the Elastic license and introduces a drag-and-drop experience for building out Kibana visualizations for any kind of data. I'm very excited about this because it's a powerful step forward on our journey to simplify the user experience in Kibana, and broaden its applicability to even more users. The single technology foundation simplifies pricing as well. This is true in the context of eliminating the need to calculate pricing across hosts or seats. Our model is also more efficient for us as a business. If we make one part of our stack faster or more secure, the entire stack and all use cases benefit from that. We’ve been leading the charge in the observability space long before it was even called observability, and we saw massive adoption of our products for logging and metrics. So we bought an APM company that is engineered on the same technology foundation. This move immediately added value to many customers using Elastic for logging and metrics use cases. It's also why we joined forces with Endgame, because while you observe your infrastructure, why not protect it? This message is compelling at many levels. I was at our New York Elastic{ON} Tour event recently and hosted a customer dinner with CIOs and senior executives from several Fortune 500 companies, and our vision for the interaction between the observability and security spaces through a single cohesive technology stack really resonated with them. Their reaction is representative of what we will continue to see across our community. It’s common for customers to initially adopt us for one use case. For example, in Q2, we closed new business to power the Zelle payment network. Billions of dollars over millions of transactions are moved each quarter via the service, and network uptime is critical. They replaced their previous solution to address challenges with scaling and speed. Now, they can search across large volumes of system logs to diagnose and resolve potential issues quickly. But there's more value readily available to customers like them, including APM, endpoint security, and more, and that's because of how we've engineered our products, pricing, packaging, and business. This is a powerful story to tell, all within a single stack. We also continue to make strides with our cloud business this quarter. We have a presence on AWS, GCP, Alibaba, Tencent, and recently launched our Elasticsearch service on Microsoft Azure. Now it’s easier for customers who prefer to run their workloads on Azure to get value from our products in the cloud. One such customer is a Fortune 500 manufacturing company. They closed new business with us in the quarter for their logging use cases. They had evaluated other solutions but wanted to explore their logs and events in a flexible way. So they tried our free and basic offerings, and they're now an Elasticsearch service customer running on Microsoft Azure, their preferred cloud provider. Audi Business Innovation Group is another customer who closed new SaaS business with us this quarter. They have been using our Elasticsearch service for logging for some time and have now expanded to an enterprise search use case, allowing the development team at VW Group to boost their productivity and efficiency. We also expanded our footprint with Google Cloud Platform. First, we announced our availability on Google Cloud marketplace. This makes it easier for customers to get our Elasticsearch service on GCP by simplifying procurement and consolidating billing through their GCP accounts. We also announced availability in new GCP regions, including Sydney, London, and Northern Virginia. More broadly, we made it even easier for customers to efficiently store more data, up to 60% more in fact in our Elasticsearch service. This was made possible by Elastic License features we've released over the last year or so. Overall, we've seen strong adoption of our training and consulting offerings, which continue to be enablers of subscription growth. Moving on to calculated billings, which grew 41% year-over-year or 45% on a constant currency basis to $125.3 million. Note, this calculation does not include the benefit of deferred revenue acquired from Endgame. Our existing customers continue to expand their relationships with us, reflecting increased spend for existing use cases and adoption of new use cases. In Q2, our net expansion rate remained over 130%. Overall, we are pleased with our customer metrics as we continue to execute against a significant market opportunity ahead of us. The bottom line is that we believe the value is in data, and search is the best way to get that value. By building on one technology stack that can house all of your data, we make it easy, efficient, and scalable to search, analyze, and understand your data through multiple lenses. It’s incredibly powerful when you can bring all the pieces of the same story that you might want to tell into one place. We make that possible. That's all for me. I'll now hand it over to Janesh.

Thanks, Shay. We're pleased with our revenue growth in the second quarter, which reflects continued execution against our large market opportunity. We've now crossed the $100 million mark in quarterly revenue thanks to our customers, users, partners, and employees. Total revenue for the second quarter was $101.1 million, growing 59% year-over-year as reported or 63% on a constant currency basis. We saw continued strength in our Elastic Cloud offerings with a few deals over $1 million. We also saw strength in Elastic Cloud and some of our large enterprise accounts. Subscription revenue totaled $91.7 million, an increase of 57% year-over-year as reported or 61% on a constant currency basis. Within subscriptions, revenue from our SaaS products was strong at $20.6 million, growing 106% year-over-year as reported or 114% on a constant currency basis. We've seen strong adoption of our training and consulting offerings, which continue to enable subscription growth. Moving on to calculated billings, calculated billings in Q2 grew 41% year-over-year or 45% on a constant currency basis to $125.3 million. APJ was the fastest growing region followed by EMEA. Within the United States, we saw strength in some areas, but also experienced some delays in our federal government business as some deals moved out of the month of October. Overall, we've seen strong adoption of our training and consulting offerings which continue to be enablers of subscription growth. In closing, I'm pleased that we delivered strong revenue growth in Q2 while investing to address the rich market opportunity ahead of us in so many different use cases.

We will now begin the question-and-answer session. Our first question comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my question. First, I'm going to start with Janesh. The overall quarter looks strong, and it looks like you're raising the full-year expectations this quarter. That said, there are a lot of questions on calculated billings. I'm wondering if you can help us with the delta there, and then as your SaaS business continues to ramp, what's the right way to think about growth?

Hey, Matt, yes, so let me take both of those questions. First off, in terms of the deferred revenue on the balance sheet versus the statement of cash flows, I'll remind you that we closed the acquisition of Endgame here in Q2, so we acquired a little bit of deferred revenue through that transaction. So, we had a little more than $6 million of total deferred revenue that we acquired through the Endgame acquisition, and when I think about growth and metrics going forward, revenue and calculated billings are still important metrics for us. Revenue captures all the different ways in which customers consume our technology. Billings vary from quarter to quarter based on deal timing as well as deal size. The SaaS business has been growing nicely for us.

That's helpful. And then one for Shay, your new Endpoint offering, could you talk about what type of customers you're targeting and could you envision putting the Endgame offering also on servers?

Yes, great question, Matt. Our mission is to protect every single piece of endpoint out there. Our initial implementation with Elastic Endpoint Security means that you deploy the existing Endgame platform next to the Elastic stack, and we built the native integration between the two. Our goal is to fold the Endgame product into our Elastic stack to become a native part of it, which means that every deployment of the Elastic stack will have built-in endpoint protection within it. I'm very excited about being able to bring that unified protection into the security solutions space that we have.

Our next question comes from Raimo Lenschow with Barclays. Please go ahead.

Thanks for taking my question. Can you talk about how you see observability with cloud and on-premise solutions, and help us understand what you bring to the table?

I'll start with saying that our regions started from the logging space, and we've developed a complete end-to-end solution when it comes to IT operation logs. I would argue that we have the best solution out there today from functionality and technical implementation. We went down this path of having metrics and APM, and now we have a fully integrated solution that combines the three together. Everything is implemented on one technology stack, which means that you can weave machine learning algorithms to custom visualization. I think the opportunity is enormous, as organizations realize they need to observe their infrastructure.

Yes, I'd like to add a customer example. One of our largest win in the quarter was a multimillion dollar SaaS win where the customer bought into our vision. The customer actually moved off AWS Elasticsearch, because they saw the value in the proprietary features that we brought. It's opening the door for broader opportunities for us, and I'm quite excited about that.

When I look at the quarter, there were many things that were positive for us. So, there's a lot for us to be pleased about. There were some delays in the federal business with some deals moved out of October, these were timing delays, not competitive losses. We're confident in our federal business overall.

Hi, congratulations, team Elastic. I have a question for Janesh, and one for Shay. Janesh, when I look at calculated billings, there’s definitely deceleration. Is it just a function of a growing company or other factors? I’d also like your thoughts on the SaaS revenue growth.

On calculated billings, the main effect there was the result of those federal transactions slipping. We've got so many different areas that we're investing in and we've doubled down on SaaS. The monthly SaaS revenue was stronger this quarter than what we've seen before.

Yes, I would say that when you see these silos break within use cases, you usually see more competitive pressure. We see the opportunity increase over time as observability tools become simpler and more efficient. We are leading the pack when it comes to observing every piece of infrastructure through a single technology stack. We’ve been taking it a step further and our vision is to collapse endpoint security into our stack to also protect that. Our goal is to break down the silos, which I see as beneficial from a growth perspective.

I was wondering if you could add any more color on how your recent investments have expanded the gap, and how that's translated into customer wins.

That’s great to hear. The APM product beat one of the leading APM vendors, which shows the maturity of our work in building a great product. This win highlights the value we bring to customers and helps in moving them off other platforms.

When you think about the modeling going forward, how are you modeling the SaaS business over the next year? How does that shake out?

As I think about it, monthly SaaS has been increasing gradually. I would expect growth to continue, although at a modest pace. We'll see that reflected broadly in the SaaS mix overall, which we expect to continue to grow quicker than self-managed.

That concludes our question-and-answer session. I would like to turn the conference back over to Shay Banon for any closing remarks.

Thank you all for joining the call. Q2 was a strong quarter for us. We remain focused on a large market opportunity and continuing to deliver both innovation and value to our customers. We look forward to seeing many of you at the Barclays Conference next week. Take care.

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