Good day, and welcome to the Elastic’s Fourth Quarter Fiscal 2022 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nikolay Beliov. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on today’s conference call to discuss Elastic’s fourth quarter and fiscal 2022 financial results. On the call, we have Ash Kulkarni, Chief Executive Officer; and Janesh Moorjani, Chief Financial Officer and Chief Operating Officer. Following the 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, ir.elastic.co. Our discussion will include forward-looking statements, which may include predictions, estimates, our expectations regarding the demand for our products and solutions and our 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 these 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 also discuss certain non-GAAP financial measures. Disclosures regarding 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 2023 quiet period begins at the close of business, Friday, July 15, 2022. During the week of June 6th, we will be participating in the Bank of America Global Technology Conference. With that, I will turn it over to Ash.

Thank you, Nikolay. Hello, and welcome, everyone. I’m happy to be here with you today and share our Q4 and fiscal year 2022 results. I’m very pleased with our execution in Q4 and in FY22 overall. Strength in the demand environment continued which fueled a strong quarter and fiscal year for Elastic. In Q4, revenue grew 35% year-over-year and 37% year-over-year in constant currency. And we once again saw robust customer acquisition and expansion metrics. We ended the quarter with more than 18,600 subscription customers, including over 960 with annual contract value of more than $100,000. And our net expansion rate was just under 130%. Looking at the full fiscal year, revenue grew 42% year-over-year. Elastic Cloud did especially well with revenue of $298.6 million in FY22, up 80% year-over-year. Throughout the year, we saw customers continuing to adopt Elastic Cloud and grow with us, expand across use cases and grow consumption as their enterprise data continued to grow. In Q4, annual commitments from new and existing customers to Elastic Cloud nearly doubled versus the prior year, reflecting the value that Elastic Cloud delivers to them. We saw growth across all geographies and increased mindshare at all levels of the business. I would like to thank everyone who makes our continued momentum possible, from our customers and partners to our community, and most importantly, our employees. We are adding talent across the business and strategically hiring leaders in critically important roles. I’m happy to share that we recently appointed industry veteran, Carolyn Herzog, as our Chief Legal Officer; and appointed Janesh Moorjani, as our Chief Operating Officer in addition to his role as Chief Financial Officer. Now, I would like to talk a little bit about the fundamentals of our business. Our core strength is our data analytics platform powered…

Thanks, Ash. We once again delivered strong results, capping off an outstanding year for Elastic. We delivered fiscal ‘22 total revenue growth of 42% year-over-year and Elastic Cloud revenue growth of 80% year-over-year. In fiscal ‘22, the majority of our incremental revenue dollars over fiscal ‘21 came from Elastic Cloud. We exited the year with Elastic Cloud representing 37% of total revenue in Q4 compared to 29% in Q4 of the prior year. The momentum in Elastic Cloud provides a solid foundation to deliver strong growth for many years to come. And we achieved non-GAAP operating margin breakeven for the full fiscal year, which was a significant milestone, considering it was only a year after achieving free cash flow breakeven and fiscal ‘22 was only our third full fiscal year as a public company. Let’s get into the results for Q4. Total revenue in the fourth quarter was $239.4 million, up 35% year-over-year or 37% in constant currency. Subscription revenue in Q4 totaled $221.7 million, comprising 93% of total revenue. Within subscriptions, revenue from Elastic Cloud was again strong at $87.7 million, growing 71% year-over-year or 72% in constant currency, driven by customer growth and usage. Elastic Cloud revenue grew 9% on a sequential basis versus the prior quarter. As a reminder, the fourth quarter had only 89 days compared to 92 days in the third quarter, and this represented a sequential growth headwind of over 3%. The vast majority of Elastic Cloud revenue is derived from consumption-based arrangements. We saw continued strong consumption trends throughout the quarter in both, the annual and monthly formats. Monthly cloud revenue was once again approximately 17% of total revenue in Q4. Professional services revenue in Q4 was $17.6 million, growing 35% year-over-year. We do not expect professional services to increase significantly in mix.…

[Operator Instructions] The first question comes from Ittai Kidron with Oppenheimer. Please go ahead.

Thanks. Hey guys. And congrats, Janesh, on your promotion to a COO. Double the salary, good for you. I guess, I have a question for you, Ash, just kind of thinking about the environment. Janesh clearly said that you don’t see any change to the business environment. But, what are you hearing from customers? Clearly, there’s voices, especially in Europe, but I would suspect we’ll get here in the U.S. as well, where macro is still very much a concern. And how much is that starting to impact customers’ psyche and how they’re thinking about their investment plans for the next coming year?

So incidentally, I spent a fair amount of time in Europe just this past quarter. I was there a couple of times, met with many customers. And the demand for our offerings remains very strong. What I heard when I was meeting with customers like SWIFT and ING and so on, fundamentally, the use cases that we are primarily used for, whether it’s security, whether it’s observability, even certain aspects of Enterprise Search when you’re dealing with Tier 1 applications, Security and Observability tend to be much more mission-critical, much more front and center of customers’ minds. And they are the kinds of use cases that tend to be very important, not just in good times, but even when you are dealing with difficult situations like what you have right now with Russia and the aggression in Ukraine. So I found the interest and demand for Security, the interest and demand for Observability, especially for Tier 1 applications, which is where we typically tend to be used to be very strong. And so, that is what I believe is the fundamental strength in the business just in terms of the use cases that we have.

Very good. And then, maybe as a follow-up on the comp, you talked about the change to the comp plan to be more biased towards cloud. Maybe you could talk about some of the details around this. And how do you feel has your sales force adjusted to this change? Is there potential risk in some gaps or kind of in a transitional period from one component to another where potentially some of your performance kind of for a quarter or two takes time for it to find its footing.

Yes, it’s a great question. And this is something that I had mentioned even in my last earnings call, right, that cloud -- I believe very strongly, we all believe that cloud is our future. That’s really where our customers are taking us. It’s good for customers. It’s good for us. And so, even the sales teams have been not only embracing this, but really driving this very wholeheartedly. As Janesh mentioned, and I talked about this as well in Q4, our customer commitments to annual cloud almost doubled. So, that should be an indication of the way in which our field is really leaning into this. And that gives me a lot of confidence that this is not something that we are going to have to really work hard through. This is something that the field is embracing wholeheartedly because it’s just generally right. In terms of the compensation structure and the compensation plan, we are definitely biasing towards cloud. So, when you sell cloud, there is definitely a -- the compensation is higher and the field gets it. Because of that, there is more interest. We have done effectively sales incentives in the past around cloud, and what you saw in Q4, that’s the kind of reaction that we know as we go into FY23, we want to drive throughout the year and into the future. And that’s really what gives me confidence that cloud is going to continue to be the source of strength for us going forward.

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

This is Vinod [ph] on for Raimo. Thanks for taking my question. And I appreciate some of the new disclosures, and that’s kind of where I want to start. Can you give us a sense of maybe some of the adoption of Elastic’s newer Observability solutions like APM or infrastructure? And just talk about the adoption of these solutions over the last couple of quarters versus some of your more established products when they’re a little bit earlier in the adoptions life cycle?

Yes. Raimo, that’s a great question. And we don’t break out the subsegments because, as you know, typically, our customers tend to use us for one use case, even within Observability, and then they tend to grow from there. Our pricing model is such that we don’t differentiate. We don’t have separate SKUs for infrastructure monitoring versus APM versus log analytics. Now, having said that, as you can imagine, the first solution and probably the most mature aspect of observability where we first started was log analytics. So, the typical use case for Elastic and Observability starts with log analytics. But I’ve given some insight last quarter into just the fact that, with APM, we’ve been seeing significant expansion even with infrastructure monitoring. As you’ve seen some of the capabilities that we have delivered around CICD monitoring, Kubernetes monitoring, all of that is something that customers naturally tend to adopt. And we are seeing good success in all of them. But we are not breaking down sort of the details because, frankly, that’s not our model. Our model is to get customers to start using in one small way and then just quickly adopt more and more. And where that gets seen best is in our cloud expansion, our net expansion rate in the cloud. The 140% that Janesh and I talked about, that comes from that constant expansion motion. And like I’ve described in the past, this is much easier in the cloud than with self-managed, and we see it in a much more pronounced way there.

And if I could just add to that, Vinod, one of the data points that we had mentioned around this previously also was talking about the momentum in cloud, particularly with respect to Observability, we now have more than 2,000 customers on APM in cloud as an example. That’s just another kind of data point that helps indicate the momentum that we are seeing there.

I appreciate that. Thanks. And then just one more for me. You have -- I think if I heard correctly, it looks like over half of your $100,000 ACV customers are still using one product. Can you maybe talk about some of the strategies you can employ to maybe cross-sell more solution to them? And what’s kind of been the main obstacle that’s prevented some of these big customers from adopting more solutions?

Yes. So, I’ll touch upon that. You’re absolutely right that there’s a lot of opportunity for us to continue the expansion motion. And it’s more than just two, right? So, our goal is to get our customers to use all three of our solutions. And in time, as we have even more solutions in the future, that’s the land and expand motion that we want to continue driving. Our strategy is very simple. It all starts with the product. So, in the product itself, we want to make sure that we make it very easy to allow the customer to use the data that they’re bringing into our platform for more and more use cases. So, the investments that we put into building out Elastic Agent, which provides one single mechanism for ingesting data that can be used for either observability purposes or for security purposes. That’s the kind of mechanism that makes it easier for customers to start using the data that they’ve brought in for more than just one thing. We also then have our pricing model, which really makes it easy for you to start trying out our next solution and the next solution after that without having to have a purchase conversation with somebody from Elastic. It’s very frictionless. You just start using it. Every peer has capabilities associated with all solutions. And really, that product-led growth model is the primary factor that we drive it. And then, it becomes easier for our sales teams to come in and have the conversation on how you can expand even more, how through commitments, you can get a consolidated spend on to Elastic and reduce costs in other places. That’s what ends up helping us displace incumbents. Now, in terms of how this plays out, obviously, if a customer is using some other technology for a part of their observability or security solution set, it takes a little bit of time to make that transition, but it’s the pricing model and the product, and then coupled with our go-to-market, that really makes that all seamless and easy.

The next question comes from Kash Rangan with Goldman Sachs. Please go ahead.

Congrats on the quarter, and congrats to Janesh as well. Ash, I’m curious to get your take on the transition to the cloud. As you move to the cloud, what are the new use cases and new kinds of opportunities that are available to Elastic that were previously not available with the self-managed on-premises approach? And also if you could talk about the specificity of the cloud architecture that will permit you to do things in the future for your customers that is just simply not -- I guess both these aspects are somewhat interrelated. But I just want to understand what the cloud structurally does for Elastic that on-prem just couldn’t do it from any perspective that you’d like to describe.

Yes. Kash, that’s a great question. And when we look at the usage of the Elastic data analytics platform, as you know, the fundamental strength that we have is search and the kinds of use cases that we typically tend to drive are ones that tend to be more mission critical, more operational in nature, Security, Observability, Enterprise Search. What we see in the cloud is the use cases themselves are very similar. However, the rate of adoption, the rate of expansion, the ability to try out new capabilities, the ability to expand from one use case to another tends to be much more rapid. And that’s reflected in the net expansion rate difference that we highlighted this quarter. And it’s really all about the fact that when you are in the cloud, you don’t have to worry about hardware deployments and you don’t have to worry about purchasing new licenses from Elastic. It’s a consumption-based model. It’s a model that naturally has no shelf there, and customers tend to just use the capabilities that they need, grow with the platform and then, automatically, they are paying us for that usage. So, it tends to be much more frictionless than anything in self-managed, especially the fact that they don’t need to worry about monitoring and managing the system, which seems to be a big advantage in the cloud. And we’re seeing all of that reflected. Now, in terms of the architecture, to your point, you’re absolutely right that there are things that you can do in the cloud that tend to be even more differentiated than anything that somebody could do on-prem or in self-manage more in their own data centers. A great example of that would be utilizing the latest and greatest infrastructure and hardware. As an example, the Graviton-based systems from AWS, the latest hardware system is based on newer AMD chips from GCP. We are able to utilize those in much smarter ways which are -- which tend to give customers greater advantages in the performance and scalability of the system, and they find that to be much more beneficial than trying to do everything in self-managed mode themselves. So, we are seeing similar use cases, but much faster adoption and growth.

The next question comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

Thanks for my questions. Congrats on the results too. Ash, you’re clearly all in on the cloud and the AWS news two weeks ago was great to see. Can you talk about how big of a deal that enhanced collaboration is with them? And maybe how customers -- or what the go-to-market initiatives are and maybe can customers use AWS cloud credits to purchase Elastic Cloud?

Yes. It’s a great question. And look, the fact of the matter is that when you have alignment all the way from the executive level to product level integration to engagement and collaboration in the field, that’s a great thing. And this has taken us time to get to the state, but we are very happy with where we are. In terms of the announcement that we made, there’s a lot of work that we’ve been doing in the background in terms of deeper product integration. A great example of that would be the fact that now if you’re a customer who has lots of commitments on AWS, you can actually start the trial of Elastic directly from the AWS marketplace. And then you can immediately start to consume it from there and pay for it using your AWS credits. We’ve been doing more in terms of engagement with AWS selling teams to partner and jointly drive go-to-market activities. And even at an executive level, when we think about the overall relationship, it’s gotten obviously much better. So, we see this as a really good thing for the long term. At the end of the day, customers are looking for Elastic on all clouds. And a lot of customers run Elastic on AWS. That’s great for us. It’s great for AWS. And it’s wonderful for the customer.

No, that’s really good to hear. We’ve covered the stock for a long time, and it just feels like it removes one of the overhangs on the stock historically. It’s really great to hear, Ash. And then, Janesh, maybe just a quick one for you. There’s a lot of good things to talk about from the results. But I think the biggest news from my perspective, too, is the $2 billion guide -- revenue guide for fiscal ‘25. When we think about the bridge to that, your fiscal ‘23 guide calls for about $220 million of net new revenue. But to get to the midpoint of from ‘23 to $2 billion in fiscal ‘25, implies about $920 million of net new revenue between fiscal ‘24 and fiscal ‘25 or really an acceleration of growth. Can you help us maybe think about the bridge of how we get from your midpoint of your fiscal ‘23 guide to $2 billion?

Hey Matt, happy to. So, first off, just as I pause and reflect on fiscal ‘22 for a moment, obviously, a very strong year for us as we capped out with 42% year-over-year growth for the full year with cloud growing 80%. And in terms of the confidence for the future, there’s a number of things, right, beyond the -- just beyond the massive dam, I think it comes down to a couple of things. First, a strong adoption of our products. Ash talked about this at length in his prepared remarks and some of the earlier questions. And customers just show us how they are using us in mission-critical use cases at scale and they are ramping their use of Elastic even further. And then the second piece for us is just the tremendous momentum in Elastic Cloud. If you think about it, it’s now 37% of the business, growing 71% year-over-year. And we just see this momentum continuing. And the sheer heft of that will start to impact the model overall. As you heard us talk about earlier, we expect that cloud will be more than half of the business by Q4 of fiscal ‘24, which is significantly earlier than we expected. So, when I look at all of those pieces together, and together with the net expansion rate in cloud, which has been increasing and now stands at over 140%, all of that gives us confidence in the future. And then, to back that up, we made heavy investments in fiscal ‘22, as you know, to capture this market opportunity. And as you’ve seen, we’ve been delivering results against those investments, and those investments are ramping quite nicely. So, we think that all of those elements come together in terms of the view behind the $2 billion in three years. And to put the growth in context a little bit in terms of thinking about the bridge to fiscal ‘23 and then the couple of years after that, we are guiding to 29% constant currency here in fiscal ‘23 for the full year. And it’s obviously still early in the year. We’re off to a great start. If you think about the Q1 guide, it’s at 32% constant currency growth, and that’s against a tough comp. And so, it’s still early in the year. We feel very good about the outlook and the growth implied for fiscal ‘24 and ‘25. We’ve had a great track record of doing what we say we will do, and we’re just staying focused on the opportunity ahead of us and staying focused on execution.

The next question comes from Tyler Radke with Citi. Please go ahead.

This Yitchuin [ph] taking a question for Tyler here. Congrats, Janesh, on the new COO title as well. Nice close to the year here. Ash, you mentioned some company that has better use, especially the Fortune 50 company that doubling usage in the quarter here. But I’m curious if you see any weaker usage or how has some of your highest growth customer in the past year trended in the quarter here given some of the commentary among some of your peers that saw slower momentum?

Yes. Thanks for the question. No, we have not seen any indication of slowdown in the demand and the consumption. As I mentioned both, in my prepared remarks and Janesh did as well. And I think part of what I want to make sure that everyone sort of recognize is just the criticality of the kinds of use cases that customers use Elastic for. When you think about security and the analytics observability use case that that particular customer is using us for, they are using us to observe and make sure that their Tier 1 applications are up and running. It’s the logging infrastructure that ensures that every major Tier 1 application that they are -- that they care about, these things are mission-critical to them. So from their perspective, as data grows, they need to use Elastic, and they continue to use Elastic. And that’s not a place where we see customers trying to make any optimization. So, that is an inherent strength for us, and it’s continuing.

Got it. Janesh, just touch on some of your total customer accounts being slightly slower than before. It’s actually slowing for a few quarters, too. Just wondering, have you seen some of your smaller customers like change to the open source version, either just how your total customer expectations are trending?

So, as I mentioned earlier, this was actually part of a strategy that we initiated. So as we drive profitable growth, we’re focused on making sure that as we acquire customers and nurture those customers that they are higher quality and not focus solely on quantity. And we’ve been evolving this. And so we’ve now started to see the benefits of the strategy. What that does for us is it allows us to drive higher consumption revenue, both in the near term as well as in the long term because these customers are just more likely to expand their spend with us over time. We qualify them better upfront. We understand their needs better. We engage more deeply with them from a technical standpoint. We do all of the things that nurture and encourage that growth. And then, we see that growth and expansion over time. And it’s one of the ways in which we are staying focused on more profitable growth. And I think this will help both, our customer acquisition costs, as well as drive just higher lifetime values. So, this is something that we initiated. And that’s why we provided the additional information on the customer account more than $10,000 of spend. And you will see that in Q4, that was a very strong number, the strongest in at least a couple of years, which then points to you that -- points you to the fact that most of the reduction really came in the really small dollar accounts, which is really what the intended strategy was. So, the strategy is playing out as we expected, and we are quite happy with it.

The next question comes from Brent Thill with Jefferies. Please go ahead.

As it relates to the go-to-market into the next fiscal year, can you just walk through some of the changes that you’re making? Is it just the incentive on cloud? Are you now making additional tweaks? Can you just compare and contrast what has happened in the past to how you think it looks like going forward?

There are a couple of things that we are focused on. So, first and foremost, it’s just the compensation. At the end of the day, we want to make sure that our sellers, when there is a question in the customer’s mind on what is a better answer that our sellers are focused on cloud, they position the cloud and lead with cloud. And towards that end, we are making sure that they are incentivized to do so. So, the compensation for selling cloud is going to be higher, is set to be higher than the compensation for selling self-managed. That’s the first thing. The second thing is consumption, like we’ve talked about, is something that is a really great thing for us. As customers come on to our platform, they tend to consume more and they just grow with the platform with more use cases. And we’ve now made it possible for our sellers to also have visibility into the consumption of their accounts, so we can make sure that the entire customer journey is something that they drive with a lens of consumption. We believe that’s going to be really good for the customer and how we support them through their growth. And for us, in the long term, that’s what’s going to be, again, a big aspect of our growth in the cloud.

Okay. Janesh, I know you mentioned multiple times you haven’t seen any of the macro factors. But a lot of companies in your space are starting to see it. When you think about these kind of long-term aspirations that you put in, are you baking enough kind of wiggle room if the macro gets tough? Or are you just baking in, hey, we’re going to hit this revenue target based on current macro because I don’t think anyone is believing that things are going to stay what we’re seeing as right now. So, can you just give us a sense of what you factored in from a macro assumption?

Yes, Brent, happy to. So as we said, we’re not seeing these signals in any of our demand patterns today. And as I think about the $2 billion goal, we actually have multiple thoughts to getting there. If there is a downturn, it obviously depends on the severity and the duration. But fundamentally, we’re in very strong market areas. And Ash touched on this earlier, where our solutions are sticky, and our core demand drivers, they stay intact even during a downturn. Data volumes keep growing, threats don’t stop, apps and infrastructure don’t shut down, customers are still spending on security and observability. And I think this differentiates us from many of the other software companies out there, including some of the ones that are a little bit more generic in their approach. So, we actually feel very good about the long-term outlook. And as I said, we have multiple parts to getting there. The momentum that we’re enjoying on Elastic Cloud, the expansion that we’ve been experiencing, the strong customer feedback, including from Europe, as Ash described, I think all of those things play nicely to our advantage over the long term. So, we feel pretty good about the outlook we are providing here.

The next question comes from Kamil Mielczarek with William Blair. Please go ahead.

Great to hear about the broad strength. Just kind of a higher level one for Ash. As you think about your three core product suites, there’s a wide range of functionality that underlies this area. And Observability alone, you APM, infrastructure, [indiscernible] loss management, et cetera. As you look toward that $2 billion target, how do you think about prioritizing R&D investments across the product portfolio and possibly leaning into areas of strength and security, while sharing you’re not under-investing products where you historically had big competitive advantages such as management?

Yes. So that’s a great question. And one of the greatest strengths that we have is the fact that we have a very well vertically integrated platform. So, effectively, all the data is in Elasticsearch, Kibana is our visualization layer for everything, our mechanisms for ingesting data are very similar. It’s Agent -- Elastic Agent is what is used to bring in data for all of our use cases. So, fundamentally, we get a lot of leverage just from having that vertical integration. It’s really something that also simplifies the overall stack and overall technology. And then, when we look at our opportunities, the teams within the R&D organization for Elastic Observability and Security and Enterprise Search, they really -- their goal is to make sure that they are delivering the best solution in the market for their use case. And when it comes to the overall opportunity, the market is big enough that we believe that we can actually do well with our platform in all three, and we don’t see a need to compromise on one or the other. And the natural leverage that we get from the vertically integrated platform, again, when it comes to overall R&D efficiency, ends up being a big source of strength for us. So, I don’t know whether I would look at it as us having to compromise on one solution versus another. It’s more about how do we make sure that we are investing appropriately with the right efficiency that we have in R&D to drive for leadership positions in all three of these solutions. And over time, just given the fact that it is a data analytics platform, it is powered by search, we see customers using us for a long tail of other solutions. We were effectively led to Security and Observability based on what we saw our customers doing with our platform. So, as you look forward, as you look ahead multiple years, and I would fully expect that there will be other solutions that emerge that are just as mission-critical that are just as interesting and have large total addressable markets that we might choose to enter into. But all of them will have one thing in common, which is this notion of building on top of a vertically integrated stack. That’s a huge element of strength, and we intend to retain that.

Our next question comes from Rob Owens with Piper Sandler. Please go ahead.

I was hoping you could drill down into Security and the use case that you’re seeing more prevalent right now. Is it more of a SIEM replacement cycle that you’re seeing, or is it XDR? And I know those two categories are emerging, but you do have the end game capabilities. So I want to understand where you’re seeing that near-term momentum. And if you’re still seeing a line of demarcation between where SIEM starts and stops and where XDR is? Thanks.

That’s a great question. We see tremendous strength in SIEM and continued opportunity there. One of the trends that we are seeing in the market is just given the overall environment around cybersecurity, there is a real serious concern amongst organizations to make sure that they’re not missing any threats. And what that means is just a need to make sure that they are storing all data, analyzing all their data and not taking the chance that there might be something hidden in some aspect of the data that could downstream turn to be a big issue. So, SIEM is front and center. We see customers developing new SIEM capabilities, expanding their SIEM capabilities. The fact that we can store massive amounts of data at scale is a big differentiator that results in us being able to displace incumbents. We are seeing a fair bit of that. So, SIEM is definitely the foremost aspect that we are leading with, in Security. Our EDR and XDR solution, as you know, is relatively new. We launched that XDR capability late last calendar year. We’ve been seeing a lot of good traction with that. And even analyst recognition. I talked about the fact that Forrester recognized our EDR functionality in the Wave report that they wrote recently, and we are seeing that pickup within our customer base. But it is relatively newer, and we are seeing the kind of execution that you would expect where we lead with SIEM typically, and then you often see customers starting from there and starting to use some EDR capabilities, expanding to XDR, using us across multiple threat vectors. Incidentally, next week at RSA, we are going to be announcing our cloud security functionality. We made a couple of acquisitions last year, and that functionality is now coming into the platform as well. So, that will be another interesting area, gives us the ability to now talk about XDR across cloud threat vectors as well, which is also going to be very exciting.

Our next question comes from Koji Ikeda with Bank of America. Please go ahead.

I wanted to ask about the cloud net expansion rate. 140% plus here. But you also noted that it’s been expanding over the past several quarters. So, I was wondering if you could quantify that a little bit. Are we talking about 1 to 2 points a quarter of expansion, or is it maybe step functions of expansion in that cloud net NER rate? And I think you answered most of my questions already with your answer to the use cases with the cloud. But I just wanted to be sure, is there anything else to call out with the cloud that is driving that expansion, that nice expansion in that NER rate for the cloud?

Hey Koji. So, I missed the second part of your question, but - and maybe you can repeat that. But just to get to the first part of it, we have been seeing a steady increase. It’s been increasing a few percentage points every quarter. And as you know, it’s computed the same way as a trailing 12-month metric, just like our regular net expansion rate is. So, it will be slow moving, but it’s been trending up steadily a few points every quarter for the past few quarters. And I’m happy to take the second part of your question as well.

Yes. It was actually kind of a follow-up to Kash’s question about use cases in the cloud. You guys mentioned the ability to try things out and things like that. So I just wanted to make sure, is there anything else to call out with the cloud or use cases with the cloud that is kind of driving that expansion rate there?

Yes. We don’t see the long tail of use cases, as I usually think of them as being the source of the expansion. The source of the expansion is happening just within the three primary use cases that typically customers tend to use us in the cloud for. It’s more about how frictionless it is for them to grow. And if you are in self-managed, there is a natural -- there are many natural friction points. If you want to expand, bring in more data, you’ve got to go procure the hardware, even if you’re in a public cloud, you’ve got to go allocate that, you then got to figure out how to go and get licenses from Elastic. So, it tends to be much more -- there are too many hurdles in the process that don’t make it easy enough for you to grow. When you’re on Elastic Cloud, it’s just frictionless. You bring in more data, your systems are -- your automated APIs are just pulling in more data, and we are metering it and we are letting you know what your consumption is and you’re paying us for it. So, it’s a much more friction-free environment. Look, the long tail of use cases that we see are extremely varied. We’ve seen customers use Elastic for everything from risk analytics to anti-money laundering and so on and so forth. If you go into our website, you will see all kinds of interesting use cases. But the three primary use cases that customers use us for are Security, Observability and Enterprise Search. And that’s why our go-to-market motion is based on that. The way we lead with our business is based on those three. And over time, like I said, there might be others that emerge that are significant enough. We see a big enough opportunity that we might choose to look at them as solutions that we want to go after. But the three are massive. The total addressable markets are huge. And we see tremendous potential for multiple years to continue growing the way we are with just those three.

This concludes our question-and-answer session. I would like to turn the conference back over to Ash Kulkarni for any closing remarks.

Thank you, everyone, for joining us today. We ended the fiscal year with a strong Q4 and look forward to another great year ahead. Thanks again, and have a great evening.

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