All right. Okay. Hey, welcome to our next session. I'm really happy to have the team from Elastic here. Since you had earnings last week, like, maybe we start with a quick recap to get everyone on the same page, and then, we can take it from there. Like, what were the highlights from you guys, last quarter or from the quarter? Yeah. Maybe I can start, and then I can ask- Yeah. Janesh to also add in. In terms of the quarter itself, you know, in terms of revenue and growth, obviously we exceeded the guidance that we had given. Just stepping back, what I'd say is that, even given the macro impact that we saw in October, that we experienced in October, you know, we feel really good about the overall strength of the business. In terms of our competitive environment, our win rates against competition, just the way we are seeing our customers continue to use our products and the strength there, we feel really good about the long-term prospects for the business and the strength in the business. Specifically in October, we saw a couple of things play out that we had not seen until then. One was in the SMB segment. SMB typically tends to show up in monthly cloud. In the SMB segment, we saw a definite inspection, a closer inspection of consumption. We saw customers, you know, tightening their belts. The consumption was impacted. We also saw an impact in terms of the number of net new customers in the SMB segment getting onto our cloud platform. That was one thing that was very apparent. You can best see it in our monthly cloud numbers, because if you look at the month-over-month growth, the quarter-over-quarter growth in cloud, you can see the direct correlation in what happened in SMB and monthly cloud. The second thing that we saw was in enterprise, and especially in parts of Europe and parts of Asia, where, you know, the strengthening of the US dollar has had an impact on budgets and so on. We saw customers taking longer in terms of approval cycles. More inspection, more approval cycles, just, you know, CFOs getting involved at levels of deals that we had not seen in the past. October is the last month of our quarter, so we definitely saw that impact. Just in terms of the deals themselves, a few deals slipped. Since then, several of those deals have closed, so we have not seen any change in the competitive dynamics or the deals going away. This has been a lengthening and some of these deals slipping. The way we look at the future is we are conservatively looking at what happened in October and projecting that and saying that in the near term, for the foreseeable future, we are not expecting the situation in SMB to get any better. We are also assuming that what we saw in October in terms of just the approval behavior and enterprise sales cycles and so on, that that will continue. We looked at all of those factors and guided appropriately. Again, coming back to where I started, in terms of just the ways in which customers use our products, the competitive environment and our ability to differentiate, our ability to land and then expand, all of those we feel very good about. That strength continues, and that's what gives us confidence in the business. I mean the, I mean the thing is like, look, it's a macro environment. It's nothing to do with you. It's like everyone is going to have a slightly tougher time. In theory, you should have an advantage against the other guys, just from your pricing model, because, you know... Like, maybe, Janesh, maybe you can talk a little bit about like maybe, you know, how you price, and then we can talk a little bit about the benefits that you should get from that. Yeah, happy to, Raymond. I think you're spot on that, you know, when people fundamentally think about the idea, particularly in this environment where people are no longer looking for best of breed in everything, but they're looking for the best-of-suite or the best platform. The fact that we have a unified platform in which you can bring data from multiple sources for multiple solutions, that's always been one of our core competitive strengths. Particularly when it comes to unstructured data and how you land with logging and SIEM, which are really the two main entry points, where a lot of our focus is in terms of landing new customers. Even from a pricing perspective, we give customers enormous flexibility because our pricing model is based on resources, and it's so what you actually consume. If you think about Elastic Cloud, which is now 39% of total revenue, that's consumption-based revenue and you pay for what you use. If you think about it, there's no shelf ware. You know, for most other situations, the way people are used to buying software or selling software is that there's always some level of estimation that you need, and you always usually end up over-provisioning, and then you don't use some licenses or what have you. That's just not true in the context of the cloud business. That's a fantastic advantage in terms of our pricing model. I think that positions us very, very well from a competitive standpoint looking ahead. When you think about TCO calculations, when you think about the power of this on a converged platform, that all plays to our advantage. I think the one thing I will call out, though, is that, those kinds of shifts take a long time to happen. Mm. You know, as Ash said, we haven't seen any significant change in competitive intensity against us in the near term. You can clearly see in a lot of the customer conversations that we are having, people are increasingly focused on thinking about how best to consolidate their spend onto the Elastic platform. I think that just takes time to play out. You have to work through the mechanics of when their renewals of their existing contracts come up and so forth. It's, it's clearly a trend that plays to our advantage. Yeah. Yeah. Like, I mean, I don't know if you have a cost analysis, but like, From the conversations I have with people in the field, Barclays is a big customer. Sure. You know, the cost advantage is meaningful that you can offer- It is. with your kind of, model. Is that like something that, it continues to play out in terms of if you have customer conversations if other guys come up for renewal? Yeah. Go ahead, sorry. Yeah. Absolutely. Clearly Barclays has seen that firsthand as a customer of ours. The overall TCO argument works very well. Yeah. I mean, obviously, as we project forward, that's an area, as you can imagine, that we are leaning into because if that's an advantage and that's what customers are going to be looking to do, we definitely, you know, believe that it's going to be something that works well for us and for our customers. You know, one of the examples I talked about on the earnings call was a large 8-figure deal with a financial services customer that, you know, consolidated all of their APM, their application performance monitoring, onto Elastic. That customer had traditionally used us for log analytics. What was interesting about that use case was not just the broad usage of APM, but the fact that they consolidated on Elastic displacing other technologies. What really worked very well for us, which continues to be a big strength, is the open platform that we have. Just to give you some sense of what that means, you know, they have close to 3,000 applications. It's a bank, so they haven't traditionally leveraged the cloud much, but they are starting to in a pretty significant way. As they're moving those applications to the cloud, they wanna rethink how they do observability. What really attracted them to Elastic was the fact that, you know, they have multiple different use cases. There are people who need that APM telemetry for retail banking to make sure that an application- Yeah. Both on mobile and on the web is, you know, appropriately fast and responsive. They've got use cases around risk management. They wanna build risk models to understand, you know, the kind of activity that they're seeing. They have use cases around interbank commerce and making sure that they can do fraud analytics on the transactions that are going through. they have a lot of requirements where different groups want to not only look at the APM data, but correlate it with other data sources. for example, you know, wanting to understand and make sure that they were able to deliver the best possible response on the largest and most valuable transactions. Now, to be able to do that, you need to pull in business data. You need to be able to pull in business transaction data, and that's completely different type of data. It's got nothing to do with, you know, traditional observability or APM. Other platforms, you would not be able to do it in just one particular tool because most of these, you know, APM tools, observability tools, have been built specifically as observability tools. That's all they do. You can't think of it as a way to, you know, bring in additional sources of data and get, you know, other kinds of insights into it. For them, it would have meant either investing in multiple different technologies- Mm. Doing everything with one thing, which is Elastic because of our open platform. It was a consolidation play from a cost perspective, but it was also just this notion of the thinking about it as a platform more than just a tool. We are seeing more and more of that. You kind of raised a good point there now because the next question that comes out of that is like, where I'm looking very surprised, is like, do APM that well that you can take an APM guy out? Like, talk a little bit about the evolution of your products in terms of like being able to handle that now. Like, I remember like, you know, and I just remember who did you buy on the APM side like years ago? You know, that was like the first foray, it was like a small business now. I hear it from my guys as well, like they kind of look at you at APM like very closely. You have the capabilities to be able to do that. Like, can you talk a little bit at the evolution of? Yes. The product outside of like bots? Our focus has always been on this notion of, you know, getting behind open technology. OpenTelemetry, which has been a pretty significant driving force, in the overall observability space. That's something that we are seeing a lot of traction on. Yeah. Just to put it in terms of numbers, about 30% of our customer clusters that run observability also have APM in them. About 30% of our customers who are using us for observability are also using us for APM. That's a really interesting statistic, right? If you think about where we started, and even now, what is our land motion? Our land motion is almost always on log analytics 'cause that's where we have had the most experience. That's where we've had, you know, the most mature capabilities, if you will. Yeah. You know, when we, when we lead with log analytics, our win rates are very strong. Once we are in and once somebody's using us for logs, then having that conversation of, "Hey, you know, have you looked at what we have for APM?" The value proposition of the pricing model lets us basically tell the customer, "Just try it for a few applications. Mm. You don't have to make a all-in purchase. You don't have to go all in. Just try it for a couple. See what it feels like. The incremental cost to you is gonna be negligible if you're just doing it on a couple. See what that looks like. Once you've got that experience, then you can decide if you're getting everything that you need and more from Elastic, then you can make that decision on where you take it from here. Obviously, most customers do not want to make a complete switch until renewals are due for whatever the incumbent might be. You know, that's the way we lead into it. From a product standpoint, you know, I'd say that for APM now, we see a lot of great wins, like some of these examples that I talked about. Yeah. We've been investing in areas like metrics for infrastructure monitoring. One of the things that I talked about in the earnings call was the work that we are doing on being able to treat time series data, especially metrics data, in more efficient ways that will allow us to improve the storage efficiency, and that's gonna make us that much more appealing for metrics use cases. On observability, we feel very good about the roadmap. On security, again, like, you know, some of the stats that I shared, we've seen now very good traction on our XDR use cases. Going beyond just detection, because SIEM is where we almost always start with. Mm. Getting more into being able to protect and being able to do some endpoint protection or some cloud workload protection, that's starting to take traction. About 20% of our customers are using some XDR use case where you're going beyond just detections. We now have 30 customers for our Kubernetes CSPM. CSPM, Cloud Security Posture Management. Yeah. I mean, it's brand new. The fact that we are getting that kind of adoption, I think just speaks to even what Janesh was talking about earlier. You know, in this climate, there's gonna be a greater interest in customers- Consolidate ...to consolidate. Yeah. To do more with fewer platforms and platforms especially that give them better total cost of ownership. Yeah. Yeah. Yeah. Okay. Shifting gear a little bit, Ash, like, you know, you're now CEO for, oh, man, a while. If you think about, like, when you joined, like, what were your action points? You know, we obviously have Shay still in there. Mm-hmm. Now as a CTO, so he's kind of focused, back more on the R&D side. Like, what were your action points and where are we on that journey? Yeah. To me, the most important thing that I wanted to ensure that our entire organization is focused on was on cloud. Mm. It's not just about products, but sales and go-to-market and how do we optimize the way we go to market in terms of looking at customers by segment, looking at the cost of customer acquisition and how do we optimize that, both in terms of the self-service motion as well as leveraging marketplaces. If you see the continued traction with our cloud partners, you know, that's been a big area of focus for us. Yeah. Historically, you know, we had great relationships with Microsoft Azure and with Google Cloud, but we did not have that same kind of setup with AWS. Ensuring that we could improve our relationship with AWS and get it to a point where it became a just like Azure and GCP, a key area of growth for us. That's been a priority. Cloud. All of this sort of, you know, if I were to describe it in one word, it's effectively cloud, the focus on cloud. Where we are on that journey, I think, you know, I feel good about the progress that we're making on all fronts. In terms of the go-to-market, we changed the... Not only did we drive more focus in the org, but we also changed the compensation plans at the beginning of our fiscal year on May first. Yeah. We are seeing the field really lean into it. In terms of the products, we clearly are doing a lot more in terms of, cloud. We talked about Serverless and what we're doing there. Yeah. I'm very excited about that work. In terms of just the overall view on consumption, even from a back office standpoint, what that means in terms of making sure that we think about consumption as being the primary thing that everybody works around, customer success, support, et cetera. You know, the last thing that I'd say is, just in terms of being very focused on not just growth, but profitability. Some of those things, you know, obviously require some difficult decisions, which we made last week in terms of how we went to market for supporting SMB. That's gonna be all self-service now. In the past, it used to be sales assisted, which meant that we had an SMB sales team that would try and convert monthly customers into annual customers. Mm. We did not feel that that was getting us the right kind of return because SMB was still largely monthly cloud. You know, when you have a customer who's using us on a monthly basis, converting them to an annual contract, there's some value in that annual commitment, but at the end of the day, it's not changing the ARR, it's not changing the trajectory of the business. Servicing that segment through that high cost model. Yeah Does not make sense. We made some, you know, difficult decisions. These are never easy, as you can imagine, but they are the right decisions to make. That has allowed us to both get more focused in terms of enterprise and commercial, where we see the greatest opportunity in terms of cloud, where we see continued opportunity, and make sure that we are being disciplined in spend everywhere else. See, I mean, staying on that subject a little bit, like, the... It's interesting, the go-to-market over the last year has really changed, from what I can see from the field, et cetera. It almost feels like you still could do more in terms of getting closer to the customers. Like, you know, in terms of like, you know, more outbound rather than kind of inbound, et cetera. Like where are you on that journey in terms of like, kind of, you know, selling to enterprises, you know, with a number of accounts per sales rep that he's serving, et cetera? Where are we on that journey? In terms of the capacity, the selling capacity for enterprise and commercial, you know, that's unaffected, right? Yeah, yeah. In the actions that we took last week, none of that was changed. If anything, we're gonna continue to invest in that area because we see opportunity there. I think you need more. Yeah, yeah. My point was more that you probably need more, yeah. Yeah. I mean, part of what lets you do that is when you see opportunity for growth in certain segments, you wanna invest there, but you don't wanna do that across the board if you're not getting the right ROI, right? Yeah. You know, stopping spend where that spend is not helping you is as important as then redirecting that spend to where it is giving you the right kind of returns. We feel really good about just the capacity that we have now in the teams. Obviously, you know, as we go forward, in FY 2024, like I would expect that we will continue to look at what the growth opportunity is and invest appropriately in terms of selling capacity. From a productivity standpoint, look, we added a lot of sales reps in the last, I would say 12 to 18 months. Mm-hmm. You know, they've been ramping nicely, so as that the reps continue to ramp the productivity, you continue to see the benefits. You see us focus a lot on our CSP partnerships. That gives us some advantages. The growth of cloud through our cloud marketplace partners, through cloud marketplaces, once again, even in Q2, grew over 100% year-over-year. Yeah. That just shows that there is a lot of momentum and potential in the work that we are doing with our cloud partners, and we're gonna continue focusing on that. I think you should, you know, as you look forward, just to be very blunt about it, like we see us as continuing to be a growth company, but we are gonna be making sure that we are not chasing growth at any cost. It's gonna be much more disciplined, as you've seen from some of the things that we've done. We are gonna be focusing on growth where growth is possible, and then ensuring that we are driving profitability and continue to drive that in the business. Janesh, that's a question for you now and then on that subject. It does feel a little bit like the... Well, I had MongoDB here who kind of talked about the, you know, with, you know, interest rates higher, you need to have a higher ROI hurdle for investment. It does feel a little bit like you guys kind of using that kind of approach as well to kind of revisit a little bit like, how did I spend my money? It's like, is that a fair... Like, you know, maybe talk a little bit what's going on internally for you? Yeah. I think that's a fair way to think about it, Raimo. I mean, look, you know, there was a point in time in the past where we never as a company, never prioritized growth at all costs, but we definitely leaned in and took a little bit more risk with some of the investments that we are willing to make to see if they actually play out over time. Yeah whether they return the results that they were expected to return. If they didn't, we tried to course correct a little bit, but maybe let those experiments run a little bit longer than. Yeah ...than we should have. The whole sales assisted motion in SMB is a great example of that we've talked about. I think, you know, the current philosophy continues to be that we'll continue to drive for growth, but it's never been about growth at all costs. It's about discipline and profitable growth. We'll be much more selective in terms of where we're investing and look for those signals much faster, take corrective actions much faster as needed, and set the internal bar a lot higher in terms of what kinds of returns we expect on the investments that we are making. As Ash mentioned, as part of all of these actions, we've maintained enterprise selling capacity. In fact, our intent is to continue to increase that further, as we move further up in the enterprise, particularly with cloud, those transaction sizes get larger as well. That helps us move further up. It helps people be more productive. Yeah. I think those are all the right investments for us to make. We're being much more vigilant about how and where we invest the dollars, and that's true across all the functions. I mean, yeah, we talked about profitability. You gave us a little bit of an outlook about, maybe kind of remind us like where you think profitability is evolving for you guys? Yeah, happy to. Look, in the past, we've talked about several points of margin expansion in fiscal 2024 and 2025. We didn't put a number out there, but the way most people interpreted that was a, you know, call it a few points of expansion. A lot of people had us pegged sort of for the low to mid-single digits for the next fiscal year. Yeah, yeah. With the actions we've taken, that leverage model does not change fundamentally. Our intent is to continue to invest in the business, but at a rate of expense growth and investment growth that is slower than the rate of overall revenue growth. We'll still have operating leverage in the model every year. The way I think about that is essentially it hasn't changed the trajectory or the slope of the margin improvement, but it's lifted the whole line up. Yeah With the actions that we've taken. We feel very good that the actions that we have taken will help us get to the 10% operating margin, number for next year. There's no additional action that we need to take to get there. I feel very good about that we did take the action once. We went deeper than we needed to so that we could keep some room to reinvest. Yeah. Beyond this, it's a question of investing in a pace that's consistent with the pace of growth and opportunity that we see. The one question I got from investors there, and that's my follow-up here on that one, is like, that 10% for next year is a quite significant step up. Yeah. The question that you get is like, Well, gee, like, you know, like you kind of wanna keep talking about growth, but then now we're just kind of ramping up the margins. It's more like a reset in a way, like an internal reset, and we move from there. Is that kind of the better way to think about it? Yeah. That is the way to think about it. It's not that we would expect 10 points of operating margin expansion every year. Yeah. That would be too much. We will have some consistent rate of operating margin expansion every year that's inherent in the business. You know, again, I'd call that several percentage points. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Okay. Okay. Makes sense. Yeah. It speaks. Sorry. I could say then, well, does that mean you were running quite inefficiently before? Sorry. Well, it's not that we were running inefficiently, right? Yeah. Yeah. When you're investing for growth in a certain way, and, as I said, you take more risks, not all of those investments necessarily play out. You give people a little bit more latitude to course-correct. I think, you know, in the current environment particularly as we look ahead, it's important for us to invest for growth, but it's important for us also to learn faster and fail faster where those experiments aren't working and redirect resources faster where needed. Yeah. Also there's some just natural efficiencies that we get with scale. You know, the G&A organizations, for example, don't need to grow at the same rate at which they've grown before. As a business continues to grow 30%, 40%, 50%, in the past and at a slower rate of growth in the future, some of the investments that are more fixed in nature don't need to necessarily scale at the same rate. That's the way I think about it, and we're still focused on driving growth, but just thinking about the bar as being much higher internally in terms of how and where we invest. Ash, for you, like, is it partly also a function of like now that the product has reached a maturity, a scale, scalability, you see how some enterprises are using it, that you kind of the path is much clearer because it's like, yeah, we're an enterprise play. Yeah, we do SMB, but it's going to be like a self-serve or like it's, you know, if you wanna work with us, it's more low cost. You kind of, you don't have to experiment as much because you know this is the path we want to go. Is that kind of also kind of part of that? I think, you look innovation and making sure that you're continuing to keep that competitive gap that you have, that edge that you have over the competition is very important. I don't think that's ever gonna change, right? We'll keep focusing on that. I think what is very clarifying is the clear focus on cloud. We've talked about that. The other thing that we're also looking at is what are the right long-term bets to make to make sure that we can improve the overall efficiency, not just of the customer experience, but also of the business. You know, when we talk about investing, you know... We talked about the go-to-market piece, which is the SMB and how we service it and so on, but there are other areas of investment like Serverless. What Serverless lets us do, and I've talked about this in the past, but, you know, the work that we are doing to come up with the Serverless service, you know, that effectively lets users not only use Elastic for different kinds of use cases, but it will also allow us over time to improve our gross margins. Today, when you think about how we price for Elastic Cloud... Mm. You know, we let you pick the specific instance type, you know, on EC2 or the equivalent services on Azure or GCP. The underlying compute will let you pick the instance type. Every customer can go and see what the cost is of renting that instance type from AWS, Azure, or GCP. That complete transparency just means that, you know, when you, when you're selling value on top, that's always a harder conversation because then customers look at it and go, "Hey, can I... You know, if I, if I just, purchase software from you and go and rent my own, you know, EC2 instance, you know, what is the delta?" There is a lot of, you know, nuances that we need to work through. When we move to the Serverless model, fundamentally what it does is it just completely decouples the way you perceive and use our service. Yeah. From the underlying infrastructure. That, you know, correlation just goes away. That allows us to then, as we continue to improve the underlying usage of infrastructure under the covers, you know, use the infrastructure more efficiently. More of that, you know, some of it we can pass on to customers, but some of it can accrue to improve our gross margins. That is, you know. Effectively, The work that we're doing on Serverless is not only important for how customers will experience the service and what they'll be able to use it for, but also internally for our gross margins. That's the kind of work that we are continuing to focus on. Yeah. That's actually a great closing statement because I see my time's up. As always, extremely efficient. Yeah, exactly. Yeah, yeah. German efficiency. Yeah. Ash and Janesh, thank you. Thanks for joining me. Thank you. Thank you very much for having us. Thanks for hosting us, Raimo.