Elastic N.V. (ESTC) Q4 2021 Earnings Call Transcript

Good day and welcome to the Elastic Fourth Quarter and Fiscal 2021 Conference Call. All participants will be in a 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, Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon and thank you for joining us on today's conference call to discuss Elastic's fourth and fiscal 2021 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 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 and can also be downloaded at the conclusion of the webcast on the Elastic Investor Relations website. Our discussion will include forward-looking statements, which may include predictions, estimates, or expectations regarding the demand of our products and solutions and future revenue and other information. These forward-looking statements are based on factors currently known to us, speak only as of the date of this call and are subject to risks and uncertainties that could cause actual results to differ materially. We disclaim any obligation to update or revise these forward-looking statements unless required by law. Please refer to the risks and uncertainties included in the press release that we issued earlier today, included in the slides accompanying this webcast and those more fully described in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures. Disclosures regarding these non-GAAP measures, including reconciliations with the most comparable GAAP measures, can be found in the press release 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 fiscal 2022 quiet period begins at the close of business, Friday, July 16, 2021. 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. With that, I'll turn it over to Shay.

Thank you, Anthony. Hello and welcome, everyone. I'm happy to be here with all of you today 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 Q4 revenue grew 44% year-over-year, and we once again saw robust customer acquisitions and expansion metrics. We ended the quarter with more than 15,000 subscription customers, including over 730 with annual contract value of more than $100,000. Looking at the full fiscal year, revenue grew 42%. The strong performance was fueled by continued adoption and differentiation of our solutions and features, expansions to 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 ability to search, observe, and protect this data is critical to every company's success. We believe search is the most natural way for people to interact with data and find what they're looking for. Elastic enables customers to quickly search 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 their organization. Customers turn to Elastic for our deep expertise in creating World Class Search experiences across our enterprise search, observability, and security solutions. They are built into the Elastic Search platform, our single unified technology stack. Now, I would like to share some of the innovations we have made in our unified search platform. First, I'm happy to share that the frozen data tier powered by searchable snapshots is now generally available. Data is growing exponentially, and our customers must be able to do more than just store it. They need data to be easily accessible, always on, and fully searchable at a moment's notice regardless of temperature. With searchable snapshots in the new frozen tier, customers can now search petabytes of data in just minutes anytime they want. They will not be forced to delete data to reduce costs with the power to easily balance the speed of results with the cost of storage. In fact, one of the world's largest telecommunications companies will leverage searchable snapshots and the frozen data to better manage their high-volume logging data and storage requirements. The customer started with our free basic tier and needed a reliable and cost-effective way to keep up with growing data volumes and during major launch events. In addition, new business requirements demanded they start logging there after 60 days instead of seven, and they upgraded to an enterprise subscription to take advantage of the tremendous value provided by searchable snapshots. Now, the customer can more effectively manage the growing data volumes in Elastic while meeting their data retention requirements. Our differentiated implementation of schema on read, what we call runtime field, is also now generally available. Runtime fields provide an easy and flexible way to onboard data and make it searchable. Users can immediately interact with and enrich their data without defined fields. In one click, they can switch to the blazing speed of schema on write benefiting from the power of choice and speed in a single integrated search platform. Moving on to enterprise search, which powers search across websites, applications, and workplaces. We continue to build powerful modern search experiences for our customers that are easy to implement, use, connect, and scale. As customers continue to grow their digital footprints and generate more and more data, we're enabling them to search everything anywhere, so they can find a signal through the noise. One example of this is a deal we closed in Q4 with a major enterprise that enables customers to manage electronic agreements. They were looking to evolve the search functionality within their platform to give customers a faster and more user-friendly way to search across contracts and agreements. Leveraging the power of Elastic search capabilities, the customer is able to meet the growing demands of their customers and scale their top line growth. In another example, a longtime customer, one of the largest global banking and financial services companies in the world, expanded their business with us considerably in Q4 as they looked to deliver Elastic's technology more broadly within their company. The customer started with a large observability deployment to power their internal logging and observability center of excellence. Then, as other groups within their organizations saw the value of Elastic, the company expanded with enterprise search, one stack, one 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 as they realize the power of the Elastic Search platform. We're also seeing recognition from industry analysts. In Q4, Elastic was recognized as a challenger in the 2021 Gartner Magic Quadrant for insight engine. This is our first time participating in this Magic Quadrant. And it's exciting to see this recognition of the innovations 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, the development team can more easily ingest and manage content from any content source, including legacy and custom applications. Now, on to our observability solution, enterprises continue to expand their digital footprints and move to the cloud at an ever-increasing pace. They need to observe their applications and cloud infrastructure, to keep these complex digital ecosystems available and performing is becoming more and more critical. Elastic observability helps customers by unifying the various types of observability data like logs, metrics, and APM data into a single search platform. It allows customers to easily monitor and respond to any event happening anywhere in any environment. In Q4, we closed business with a major national home improvement retailer who was looking to gain better visibility and performance insights into more than 40 mobile and in-store applications. These applications are used to manage their retail operations across over 2000 locations. The company chose Elastic over the current provider because we delivered significantly faster speeds and better integrations of logs and APM data. This enables them to better monitor and respond to events happening in their order management and supply chain management applications, point of sale systems, and other digital environments. We're seeing recognition from industry analysts in the APM space as well. Elastic was recognized for the first time in Gartner's evaluation of APM vendors and was named a visionary in the 2021 Gartner Magic Quadrant for application performance monitoring. And we continue to simplify the ability to onboard any data into Elastic observability. We announced native support for OpenTelemetry, providing even more flexibility for customers to onboard data. In addition to using our unified agent to collect and send data to the Elastic stack, organizations can now directly send data collected by OpenTelemetry agents to the same Elastic deployment. I'm also excited to share that we announced an extended integration with Microsoft that featured enhanced support for Azure monitoring use cases, which was just demonstrated during the Microsoft Build Conference last week. Customers can now easily onboard logs and metrics for their Azure services directly in Azure to our observability solution in just a few clicks. Moving to our security solution, companies are continuing to generate more and more data everywhere. And this data plays a critical role in their ability to protect themselves from attack. Elastic security helps protect companies by making all of this data searchable and actionable from the endpoint to the data center to the cloud. It unifies security capabilities such as SIEM, endpoint security, and threat hunting in a single search platform, equipping 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 20,000 employees. They were looking to protect their large remote workforce using a scalable and easy-to-maintain solution that offered a simple pricing structure. Using Elastic security on Elastic cloud, the customer established a security operation center in just a few months and quickly launched our SIEM to drive their security operations. We also expanded business this quarter with a major public research university in the US. Their security teams scope expanded to include both the campus and the University Hospital. The customers have been using our security capabilities under a gold subscription and upgraded to a platinum 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 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 and investigation with the general availability of analyst-proven correlation powered by EQL. This critical correlation capability provides a new type of search experience for practitioners to quickly identify threats. Additionally, we now support central management and deployment of Elastic Agents, a large and rapidly growing open-source project. This integration allows customers to reach out to hosts and endpoints and search them, effectively folding them into our search platform. It is useful for threat hunters and security analysts operating everywhere. Now, if a report comes along from a malicious Chrome extension, finding who has it installed across the organization is just a simple search query away. We continue to invest in our cloud offering, expanding strategic partnerships with cloud providers and supporting customers with a simple, worry-free, and easy-to-use cloud experience. In Q4, we closed the deal with one 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 cloud. Like many of our customers, the company has grown with us over time, starting with logging and APM and expanding to security and enterprise search as different groups across the business see the value in leveraging our platform. As the adoption of Elastic within the company has grown, they have recognized the value of our Elastic cloud worry-free managed service. We have also expanded our strategic partnership and first-party integration with Microsoft. Customers can now deploy Elastic cloud as if it were a native Azure service. They can also ship monitoring data to it as if it were a native Azure service. 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 their data, no matter where it resides. Our continued investments across the business drive rapid innovation, help us bring the best service experience to all of our users and customers, and enable us to build strong product differentiation in the market. I'm incredibly humbled as I think about all the people who make it possible from employees to our community, customers, and partners. Also, I'm very proud to share that in fiscal '21, our Elastic Cares program raised $1.3 million for charitable organizations around the world. And Elastic employees volunteered more than 4000 hours as part of our volunteer time off program. Moving into fiscal '22, I'm confident in our ability to execute and I'm looking forward to supporting our growing customer base as they leverage the power of search to gain actionable insights from their data. And looking further forward, I believe that we're on our way to becoming a $1 billion plus revenue company in fiscal '23 with style. And with that, I'll hand it over to Janesh.

Thanks, Shay. Q4 was a great finish to the year, continuing our momentum of strong execution against the backdrop of a gradually improving global economy. Our solutions continue 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%, year-over-year. We finished fiscal '21 with $608.5 million in total revenue, up 42% year-over-year, reflecting strong revenue growth at scale. We are very pleased with our performance, ending the year significantly better than expected given our strong execution. Subscription revenue in Q4 totaled $164.5 million, comprising 93% of total revenue. Within subscriptions, revenue from Elastic cloud was again strong at $51.3 million, growing 70% year-over-year, driven by strong customer growth and usage. We once again saw strength in both our annual cloud business as well as our monthly cloud business. Elastic cloud revenue for fiscal '21 was $166.3 million, up 80% year-over-year, and comprises 27% of total revenue. We also passed another significant milestone as of Q4. Our Elastic cloud business now has an annual run rate of over $200 million. Professional services revenue in Q4 was $13.1 million, growing 34% year-over-year. As I've said before, services revenue can fluctuate across quarters depending on the timing of projects and delivery. Moving on to calculated billings, calculated billings in Q4 grew 38% year-over-year to $240.9 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 three solutions, driven by strong new and existing customer growth across segments and geographies. At the end of Q4, total deferred revenue was $397.7 million, up 53% year-over-year. Remaining performance obligations totaled approximately $796 million, up 49% year-over-year. Customers continue to make multi-year commitments to us, reflecting the increasing strategic relevance we bring to their businesses. Contract lengths remained over 1.5 years on average, and were slightly shorter compared to the prior quarter as well as compared to Q4 of fiscal '20. As a reminder, we do not actively manage the business to a target contract length, and our monthly cloud business has no deferred revenue or remaining performance obligations. Turning to customer metrics, we ended Q4 with over 15,000 total subscription customers, we saw significant strength in customer additions in Q4 driven by new customer momentum for Elastic cloud. We also ended the quarter with more than 730 customers with annual contract values above $100,000, compared to more than 670 such customers at the end of Q3, reflecting continued strong expansion trends. The sequential increase in customers over $100,000 ACV was the strongest in two years. Our net expansion rate was relatively consistent with Q3 but dipped slightly below 130%, reflecting the broader environment. We also achieved another important customer milestone in Q4. We now have over 75 customers with ACV over $1 million versus over 50 such customers at the end of fiscal '20, reflecting the increasing strategic importance of our unified technology stack and the success of our go-to-market model as we 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 a gross margin of 77.6%. We managed our overall gross margin well during the year, despite the increase in 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 were 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 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 $0.08 using 90 million weighted average shares outstanding during the free cash flow. Free cash flow was negative $3.1 million in Q4 and positive $18.3 million for the year. We are proud to have turned 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 '22 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 remained comfortable with our cash position from an operating perspective. Before I move to guidance, I briefly discuss our overall framework for fiscal '22. We remain very excited about the long term opportunity ahead of us. We continue to believe the best path to capturing the long-term opportunity is to further accelerate our investments in the near term. We plan to accelerate investments in all functions. Some of these investments will support growth in fiscal '22, while others will be more long-term in nature. A significant portion of our investments will be in sales and marketing, where our core strategy of driving initial adoption and then scaling up through the enterprise remains unchanged. It's been a highly successful model for us that has allowed us to get massive reach and scale. We are expanding our capacity across geographies and segments as well as scaling 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 field investments that support our solution strategy. Our full year outlook also assumes a gradual improvement in the macro environment weighted in the second half of fiscal '22. Given this backdrop, and in combination with our investors taking greater hold over time, we expect our calculated billings growth in 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 than our overall business, given our feature advantages over other offerings and our investments in expanding our reach and partnerships. In addition, we do not expect a 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 '22 as we scale in a number of our international subsidiaries. Turning to guidance, in terms of our approach to guidance, we continue to look at a number of inputs and guide based on what we know. What's different now compared to last year is that there is less uncertainty in the broader economic environment. So we reflected this better visibility and confidence in our guidance. With that context for Q1, we expect revenue in the range of $171 million to $173 million, representing a growth rate of 33% year-over-year at the midpoint. We expect non-GAAP operating margin in the range of negative 5% to negative 4% and non-GAAP net loss per share in the range of $0.13 to $0.10 using between 91 million and 92 million ordinary shares outstanding. For full fiscal '22, we expect revenue in 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% to negative 4.5% and non-GAAP net loss per share in the range of $0.60 to $0.51, using between 92.5 million and 94.5 million ordinary shares outstanding. As we look further into the future, we remain confident in the longer-term opportunity and are investing towards that. As Shay said, we believe we are well on our way to becoming a $1 billion plus revenue company in fiscal '23. And with that, let's go ahead and take questions, operator.

We will now begin the question-and-answer session. And our first question today will come from Matt Hedberg with RBC Capital Markets.

Great quarter. I mean, lots of positives, obviously, the Elastic cloud growth, I think, what was a record new customer add, and now there's the billion-dollar fiscal '23 or billion-dollar plus fiscal '23 target. I guess when we start to think about the progress to that target. Shay, it strikes me that security is going to be an increasingly important part of your business. And I guess, following all these breaches, it really seems like we have a data problem. With all the security solutions out there, could you talk about your ability to perhaps consolidate some spend, help customers feel even more secure, really harnessing the power of data to maybe make smarter security decisions?

Of course, happy to. First of all, at Elastic, we don't treat data as a problem, but as a feature and capability that we can leverage to better search, observe, and protect customers and companies. And we are happy about our ability to act specifically with what you mentioned; I think that's a critical aspect of why our security product is growing. Now, as a greater proportion of our corporate operations are tied to IT systems, there are just more opportunities to prey on links in critical supply chains. And we help customers search and observe and protect all of the data, as you mentioned, that is generated by all these systems. Even last quarter, we launched solid ransomware protection, for example, on the endpoint itself, and bringing similar protections to the endpoint, to the data center, and into the cloud. Security is our fastest-growing segment within our business. Observability represents over 40%, Enterprise Search less than 33%. And security represents around 20% of our business now, and it's our fastest growing, but we treat all of that as the same data. And, while you observe it, we believe that all the observability data can heavily contribute towards better protecting companies as well.

That's super helpful. And then I guess, to sort of double click on that a little further, with your success in enterprise search, I think you're in a really good position to help organizations with data governance risk, really, your search engine being able to identify sensitive information and monitor access to this, wherever that might sit, 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 definitely something that we're thinking about for the long-term, though I would say. Currently, the focus we have with our workplace search products is specifically to easily onboard any type of SaaS-based data, focusing on the most popular sources like Google Workplace or Microsoft data sources and Salesforce. Once we have access to this data and make all of that content searchable, which is critical to workplaces today, as they become more distributed, we can actually provide additional value over time. For example, we can monitor who accessed what data at what time because we know the content we crawled. We make it searchable, so we know what changed in it. There are definitely areas that we're thinking about, but it's more of a long-term implementation for us moving forward.

And our next question will come from Raimo Lenschow with Barclays.

Two quick questions. First, Shay, you talked a lot about the benefits from the enterprise SKU that you saw with searchable snapshots and so on. Can you talk a little bit about where your customer base is in terms of adoption of the different SKUs? And what's the opportunity to kind of move customers to the higher value added services? And then Janesh, one for you, if I look at the guidance, it looks like a step change because you've been a very conservative CFO. This sounds a lot better. What's driving your optimism here in terms of data points that you're seeing out there? Thank you.

Yes. I'll start by talking about the enterprise SKU. A few years ago, we introduced the enterprise SKU to provide our own primary self-managed cloud products. Our orchestration product was provided as part of the enterprise SKU. As we started to add more value to these enterprise SKU advanced endpoint protection capabilities, the most significant one is searchable snapshots, and we just made it generally available. That's when I think the enterprise SKU really starts to shine and be more applicable to more and more customers out there, especially on our cloud. The enterprise SKU is only recently available on our cloud, thanks to the searchable snapshots and the frozen tier. It represents a relatively small amount of business for us. And I suspect that over time, there will be a tailwind to it; it will take some time as users start to see the value of searchable snapshots specifically. And as we add more features to the enterprise SKU which we believe provide greater value to customers, we will see probably more adoption of it.

And Raimo from my lens, I'd just maybe add to that point also is that when we think about the distribution of solutions across our customer base, one of the statistics we've shared before is that over half of our customers that are more than 100k ACV have so far adopted only one solution. If I think about the million-dollar-plus customers, they've adopted two or more solutions. So that, to me, represents the opportunity that we've got to continue to drive greater cross-sell, upsell, and generate much more value from that. And then on the guidance question, the way I'd characterize our guidance approach is, as I did in my earlier remarks, that Q4 and all of fiscal '21 was a very strong year for us. Nothing has fundamentally changed though in terms of our core approach to how we think about guidance. We look at a number of different inputs for the year. We guide based on what we know. Those inputs include, for example, the funnel, conversion rates, hiring plans, productivity ramps, product roadmaps, and, of course, the general economic landscape and customer spending patterns. At this time last year, when we were initiating guidance for fiscal '21, we were in the very early stages of the pandemic, as you'll recall, and it was incredibly difficult back then to predict what the economic impact would be and how customer spending patterns would evolve. So, naturally, at that point, it was appropriate for us to guide quite cautiously for fiscal '21. What's different for us now, compared to last year, is that there's much less uncertainty. Customers have adapted their business practices; we know how to work with customers, and they are focused on digital transformation initiatives. The global economy is gradually improving. So we've reflected all of this better visibility and confidence in the guidance that we provided.

And our next question will come from Brent Thill with Jefferies.

The billion-dollar fiscal '23 target is implying roughly 20% CAGR. So that's around a 30% for the next couple of years. What's giving you confidence in that milestone at this point? Can you kind of unpack what the drivers are and the confidence around that target?

Yes, happy to, Brent. And maybe I can take that. I think the strongest indication for us is that our customers continue to tell us that their spending priorities are aligning with areas where our solutions are focused. We're seeing significant traction on a number of different fronts. We've clearly demonstrated strong execution through the course of the pandemic. And when we think about the magnitude of the market opportunity ahead of us, and the fact that we're investing towards capturing that opportunity in the long-term, all of those indications give us the confidence that that's an achievable milestone. I think about investments 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 in cloud, we've seen incredibly strong momentum there. The underlying market trends and dynamics are playing to our advantage where data volumes are exploding and customers are continuing to adopt us for more solutions and ingesting data from multiple sources and continuing to expand their usage of our technology. So it's all of those things that give us the strength and conviction around the long-term future for the company.

And just a quick follow-up; you'd mentioned you would accelerate your hiring pace. Can you just give us a sense of, on a quota-carrying rep side, are you hitting your goals, are you overachieving, or where you add as it relates to the build-out of the go-to-market?

Yes. So Q4, you will see that we added across the company 95 people, and that's faster than the pace over the past couple of quarters. Looking ahead, what I'd say is if I think about 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 was fantastic partnering with Paul; he's been a great addition to Elastic, and it was really great partnering with him as we think about where we need to make those investments looking ahead. What we also said earlier is that any changes we make will be evolutionary, not revolutionary. And so consistent with that, we're making investments in all areas of the field organization. We're also investing in the marketing function, which is just a core part of the overall go-to-market strategy. So the investments in sales will be not just in sales reps covering enterprise, commercial, and public sector accounts but also in all the roles around them that make them successful. We're also scaling 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 fiscal '22. Thus, we're quite optimistic about the longer term there.

And our next question will come from Tyler Radke with Citi.

I wanted to ask you about, I think, record net adds that you saw this quarter, a little over 1000 new customers. I was curious, number one, if the majority of those net adds are coming through in your SaaS business, and if indeed you did see a record net adds quarter in the SaaS business. And number two, just wanted to understand what do you think is driving that? Obviously, you made a licensing change that was viewed positively by some, and just curious if that's had any impact on the record net adds that you saw?

Tyler, this is Janesh. Well, maybe I'll kick us off, and Shay then you can talk about the licensing fee. 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 Elastic cloud as well as on self-managed. A lot of our new customer additions were in fact in the cloud business, where we've seen really strong trends. As you know, we've invested quite heavily in cloud, both in terms of marketing, as well as partnerships on the product side, clearly, it's encouraging to see the results of these investments play out. And maybe Shay, I'll let you touch on the licensing fees.

Yes, of course. So first of all, just in terms of overall, how our licensing fee journeys are going, they're going very well, from our perspective. We made the exchange to protect our product, brand, and IP, 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. And out of the free and open tier, the vast majority of our users that downloaded our software were only using our proprietary distribution under the Elastic license. So there is no impact there as well. We do expect over the long term to see a tailwind towards our cloud business, and we're excited about that. Tactically, for this quarter, we haven't been able to correlate it directly to our licensing change; we think that this will play out over time versus a one-time bump or during one quarter or another.