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Edited Transcript of ESTC.N earnings conference call or presentation 24-Feb-21 10:00pm GMT

·54 min read

Q3 2021 Elastic NV Earnings Call Feb 25, 2021 (Thomson StreetEvents) -- Edited Transcript of Elastic NV earnings conference call or presentation Wednesday, February 24, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Anthony Luscri Elastic N.V. - VP of IR * Janesh Moorjani Elastic N.V. - CFO * Shay Banon Elastic N.V. - Co-Founder, CEO & Executive Chairman ================================================================================ Conference Call Participants ================================================================================ * Brad Robert Reback Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst * Brent John Thill Jefferies LLC, Research Division - Equity Analyst * Ittai Kidron Oppenheimer & Co. Inc., Research Division - MD * Kasthuri Gopalan Rangan Goldman Sachs Group, Inc., Research Division - Analyst * Mark Ronald Murphy JPMorgan Chase & Co, Research Division - MD * Matthew George Hedberg RBC Capital Markets, Research Division - Analyst * Raimo Lenschow Barclays Bank PLC, Research Division - MD & Analyst * Tyler Maverick Radke Citigroup Inc., Research Division - VP & Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon and welcome to the Elastic Third Quarter Fiscal 2021 Earnings Conference Call. (Operator Instructions) 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. -------------------------------------------------------------------------------- Anthony Luscri, Elastic N.V. - VP of IR [2] -------------------------------------------------------------------------------- Thank you. Good afternoon and thank you for joining us on today's conference call to discuss Elastic's third quarter of 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, ir.elastic.co. Our discussion will include forward-looking statements, which may include predictions, estimates or expectations regarding the impact of the COVID-19 pandemic 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 and 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 fourth quarter fiscal 2021 quiet period begins at the close of business Friday, April 16, 2021. We'd also like to inform you that we would be participating in the Truist Securities Technology, Internet & Services Conference on March 10 and the Berenberg Cyber Security & DevOps Conference on March 12. With that, I'll turn it over to Shay. -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [3] -------------------------------------------------------------------------------- Thank you, Anthony. I'm happy to share some highlights from Q3 with you today. It has been a busy start to the year, and I am very proud of everything that we've accomplished this quarter. I am truly humbled to see the rapid innovation of our solutions, growth in our cloud business and our deepened customer relationship as we scale our go-to-market strategy. The continued optimism and resilience of our employees, customers, partners and community during this trying time are truly an inspiration. We had a great quarter. And once again, we showed strong execution against an ongoing mixed demand environment. In Q3, revenue grew 39% year-over-year, and we saw continued robust customer acquisition and expansion metrics. We ended the quarter with more than 13,800 subscription customers, including over 670 with an annual contract value of more than $100,000. I'm proud of the team and the results and innovations we delivered in Q3. Now I'd like to share more about those innovations with you. At Elastic, every minor release has a major impact. We aim to consistently launch new features every 8 to 10 weeks. Our strategy is to build 3 powerful solutions, Enterprise Search, Observability and Security, into a single technology stack. This enables our customers to easily deploy any solution as the needs of their businesses evolve. We recently announced a change to our licensing model, moving our Apache 2 licensed source code in Elasticsearch and Kibana to be dual licensed under the Elastic License v2 and the Server Side Public License, giving users the choice of which license to apply. We also simplified the Elastic License and made it substantially more permissive, keeping to our principles of openness, transparency and collaboration. Since introducing the Elastic License 3 years ago, we have continued to widen our feature differentiation and have built a strong competitive moat as we've expanded our proprietary feature sets. Our strong track record of execution, particularly on revenue growth in Elastic Cloud over the past several quarters, proves that our growth strategy is working well. This latest update further protects our continued investments and extend our competitive differentiation. It ensures our community and customers have free and open access to use, modify, redistribute and collaborate on the code while restricting cloud service providers from offering Elasticsearch and Kibana as a service without contributing back. I am excited about the future of our products and solutions and confident that we'll continue our fast pace of development and innovation across the Elastic stack. Two of my favorite examples of this innovation come from our recent announcements of the general availability of searchable snapshots and the beta of schema on read. Both new features transform what our customers can do with the power of the Elastic stack. Searchable snapshot is a paid enterprise-level feature that lets customers retain and search more data. This is a game-changing enhancements that lets customers decouple compute from storage and extract the most value from their data at optimal costs. We will be using searchable snapshots to power 2 new first-class data tiers. The cold data tier, now generally available, help customers significantly reduce storage costs with modest impact on performance. The frozen tier, currently in development, will take this a step further, making data stored exclusively in local's object stores fully searchable. These new capabilities make it easier and more cost-effective for customers to manage growing data volumes in Elastic while meeting data retention requirements. We are already starting to see interest from customers. SAP Concur recently expressed excitement for searchable snapshots, stating that having the ability to search data stored in S3 expands their options, allowing them to potentially reduce the total cost of service. We believe this opens the door for more usage of Elastic across the company. Blazing fast performance is what Elastic is known for, but our customers have told us that sometimes they want to trade some of that speed for added flexibility. We've addressed this with the recent launch of the beta of schema on read, which allows customers to create data structures on the fly. Customers can now choose between the flexibility of schema on read or the blazing speed of schema on write, all in one stack. The innovations in speed and flexibility that we are delivering are translating into benefit for our customers. For example, we also closed business this quarter with a leading digital workflow company, who is using Elastic to power AIOps capabilities that gives customers deeper insights into their digital operations. They're taking advantage of the speed of Elastic to analyze root cause intelligence, automated remediation task and reduce the number of Level 1 incidents. Elastic cross-cluster replication is also being leveraged to keep all global data in sync for this service. Now on to our Enterprise Search solution, which powers search across websites, applications and workplaces. It's easy to use, easy to scale and easy to connect. It helps increase productivity and improve customer engagement. We're creating a consumer-like experience built for the enterprise. I'm thrilled that customers are responding so positively to Elastic Workplace Search, our one-stop answer shop for the virtual workplace. For example, this quarter, we closed business with a global cloud communication platform company. They needed to increase sales team productivity through self-service content discovery. Because their teams are now fully remote and employees can't tap a coworker on the shoulder, the company wanted to ensure they have access to information needed to do their job. They've chosen Workplace Search to help their sales reps serve customers more effectively and reduce the time it takes their technical team to answer product-related questions. We remain highly focused on creating simple, beautiful search experiences for our users. We deepened our portfolio of content sources for Workplace Search, adding Box to a growing list of out-of-the-box connectors. We also invested in the beta of a new web crawler for Elastic App Search, giving users a simple yet powerful way to make web content instantly searchable on their websites. This update is an important milestone in simplifying the lives of our users and enabling new use cases for enterprise customers. Now on to our Observability solution, which unifies log, metric and APM data analysis into one place. It's easy to use, eliminates data silos and lowers mean time to resolution. We continue to see customers rapidly adopt our Observability solution this quarter. A great example of this is a Fortune 50 U.S. telecommunication and media company that renewed business with us this quarter. They originally came to us because they needed a way to get actionable insights from data that existed across multiple silos and different solutions. With Elastic, they are able to monitor the reliability of their video-on-demand service from their data center to the consumer blocks and back, all in one place. They are replacing their previous logging solution with Elastic, combining a diverse set of projects into a single center of excellence powering next-generation observability across the company. As companies move more of their business functions online, the ability to monitor real-time activity is mission-critical. Our new service health view in Elastic APM addresses this need and summarizes all of the information about the health of a service in one place, making it easier for customers to troubleshoot issues. With this expanded visibility into service health, customers are realizing that they can do more with our Observability solution. One of the world's top 10 software companies by revenue, for example, started using Elastic for a small log-in cluster and has since expanded their business with us to capture 4x the data. Now they've added APM traces to build out a single view of their environment, and they can resolve issues more quickly and get deeper insights into their systems. In addition, our new searchable snapshots capability help keep observability data, from logs to metrics to traces, online and searchable for longer. Our customers told us, they love that they can store 90 or 120 days of data and get millisecond-level responses, but they also want to be able to store years of data in an efficient way. We delivered on that request with searchable snapshots. Now customers can store years' worth of data and easily query it as needed to gain actionable insights without breaking the bank. Moving on to our Security solution, which unifies endpoint protection and SIEM into a single experience that's fast and scalable. We continue to gain traction with large global enterprises looking to partner with Elastic, thanks to our unified approach to security. In Q3, we closed business with a German multinational engineering and technology company, who is building out their global security strategy. They turned to Elastic to provide best-in-class protections for more than 425,000 endpoints. The company already leverages our Enterprise Search and Observability solutions. They further expanded their relationship with us to include our end-to-end security solution. This is another example of how our customers can easily expand into multiple use cases with the power of our 3 solutions built into a single technology stack. We continue to invest in our Security solution to help customers eliminate blind spots, stop threats at scale and arm every analyst. We recently launched pre-built machine learning jobs in detection rules supporting MITRE sub-techniques to operationalize analytics and provide a deeper understanding of how attacks are unfolding within an organization. We also closed business with a European law enforcement agency looking to gain full visibility, insights and speed to act within their infrastructure. The agency chose Elastic because they see the value in investing in a single platform for Observability and Security while managing total cost of ownership. They are deploying Elastic Security as a full-feature SIEM and endpoint protection solution on more than 35,000 devices because while you observe, why not protect? I'm excited to see how our unified technology stack and resource-based pricing model are helping customers expand to multiple use cases and do more with their data. The innovation in our stack translate into direct benefits for security teams. With searchable snapshots, teams can benefit from direct access to years of high-volume data with significant cost savings. This supports use cases across all of security operations, from compliance to SIEM to threat hunting and more. Extended retention of security data ensures that even when facing extremely long dwell times, practitioners have the data they need. Now on to our Cloud business. We make it easy to deploy and scale our solutions with Elastic Cloud, which is available on Microsoft Azure, Google Cloud, AWS, Alibaba and Tencent. Our ease-of-use and simplified management make Elastic Cloud a clear choice for customers. We've also added some incredibly powerful features to Elastic Cloud, notably, the ability to easily replicate and search across cloud providers in regions. Imagine you're running multiple Elastic deployments around the world on Azure, Google Cloud or AWS. Data has gravity and customers want to keep their data where it originates. Now they can break down silos by accessing, connecting and even replicating their global data using Elastic in multi-cloud and multi-region environments without being locked into a single vendor. And of course, our innovations in the Elastic stack are bringing powerful enhancements to Elastic Cloud. An easy-to-use cold tier slider in Elastic Cloud, powered by searchable snapshots, make it easy for customers to retain more data for longer at the same cost. As we continue to scale our business, we welcome Ashutosh Kulkarni as Chief Product Officer. Ash has more than 20 years of experience in enterprise software and has led product and engineering teams at leading companies, including McAfee, Akamai and Infomatica. I am excited to be working alongside Ash as we continue to bring the power of search to our community and customers and expand our Elastic Cloud presence globally. At Elastic, community is more than just code. I'm excited to share that in 2 days, we'll be hosting our first ever global Elastic community conference, a virtual event filled with insightful technical content delivered by our community members and Elastic employees. And I was thrilled to see that Elastic employees raised more than $400,000 on Giving Tuesday as part of our Elastic Cares initiative. I am excited about where the team is headed and what's to come as we move into the final quarter of our fiscal year. I'll now hand it over to Janesh. -------------------------------------------------------------------------------- Janesh Moorjani, Elastic N.V. - CFO [4] -------------------------------------------------------------------------------- Thanks, Shay, and thanks again to everyone for joining us. Q3 was another excellent quarter for Elastic. We once again delivered strong performance on all our key growth and profitability metrics. Total revenue for the quarter was $157.1 million, growing 39% year-over-year. We are very pleased with our performance, which reflects continued execution against our large market opportunity. During the third quarter, the demand environment remained generally similar to the first half of the year. As expected, we saw some headwinds from COVID-19 related to overall spending and slightly longer sales cycles as compared to pre-pandemic levels, offset by tailwinds in cloud and adoption of our solutions. Our execution against this backdrop remained consistently strong. Subscription revenue totaled $147.2 million, comprising 94% of total revenue. Within subscriptions, revenue from Elastic Cloud was again strong at $44.9 million, growing 79% year-over-year as customers continue to express a preference for our cloud offerings as they grow their workloads in the cloud. We saw strength in both our annual SaaS business as well as our monthly SaaS business. We have rich feature advantages over other cloud offerings and continue to invest in expanding our reach and our partnerships. Looking ahead, we remain confident that Elastic Cloud will continue to deliver faster year-over-year growth than our overall business. Professional services revenue was $9.9 million, growing 10% 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 Q3 grew 41% year-over-year to $173.2 million. Looking ahead, although we don't formally guide to calculated billings, I will point out that Q4 presents a tough comparison given we had a strong quarter last year. At the end of Q3, total deferred revenue was $334 million, up 59% year-over-year. Remaining performance obligations totaled approximately $706 million, up 66% year-over-year. Contract lengths were slightly longer compared to a year ago and were a little over 1.5 years on average. As we've said before, we do not actively manage the business to a target contract length. We've been pleased with the multiyear commitments that customers are making to us, reflecting the importance of our solutions to their long-term success. As a reminder, our monthly SaaS business has no deferred revenue or remaining performance obligations. Turning to customer metrics. As of the end of Q3, we had over 13,800 total subscription customers and over 670 customers with annual contract values above $100,000. Our net expansion rate remained modestly above 130%. Our continuing strong customer acquisition and expansion metrics demonstrate the strength of our land-and-expand business model as customers grow their spending with us over time as they extend Elastic to multiple projects and multiple solutions and as their overall data footprint grows. Now turning to profitability, which is non-GAAP. Gross profit in the third quarter was $121 million, representing a gross margin of 77.0%. We continue to track well relative to our expectations. 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 Q3, we increased our investments in the business as we expected and as we've laid out in our prior call. We achieved operating breakeven in the quarter, which was a better result than expected primarily due to the strong revenue performance in the quarter and, to a lesser extent, some expenses shifting to Q4. 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 Q3 was $0.04 using 88.3 million weighted average shares outstanding. Turning to free cash flow. Free cash flow was $18.3 million in Q3. As a reminder, we look at free cash flow and free cash flow margin primarily on an annual basis since there are both seasonal and timing effects in any quarter, making quarterly cash flow inherently lumpy. We are very pleased with our progress so far this year and now expect positive free cash flow margin of approximately plus 1% to plus 3% in fiscal '21, 1 year ahead of our prior expectations. We also expect positive free cash flow margin in fiscal '22. Turning to guidance. Despite the mixed demand environment we referenced in the first 3 quarters of the fiscal year, our strong execution so far gives us the confidence to raise our revenue and profitability outlook for fiscal '21. Given the significant market opportunity, beginning in Q4 and continuing into fiscal '22, we plan to further accelerate investments to drive long-term growth. I'll touch on these in a minute. We also expect to see continued significant savings from travel and events in Q4 as we have so far this fiscal year. With that, for Q4, we expect revenue in the range of $158 million to $159 million, representing a growth rate of 28% year-over-year at the midpoint. We expect non-GAAP operating margin in the range of negative 8.5% to negative 7.5% and non-GAAP net loss per share in the range of $0.18 to $0.15 using between 90.5 million and 91.5 million ordinary shares outstanding. For full fiscal '21, we expect revenue in the range of $589 million to $590 million, representing a growth rate of 38% year-over-year at the midpoint. We expect non-GAAP operating margin in the range of negative 3.3% to negative 3% and non-GAAP net loss per share in the range of $0.19 to $0.16 using between 87 million and 88 million ordinary shares outstanding. Finally, looking ahead to fiscal '22, we are in the middle of our planning process, so it's too early to provide specific numbers, but I will share a couple of overall thoughts on how we are approaching next year. First, we have not yet seen a change in the near-term demand environment and believe that whenever that starts to improve, it will only be a gradual change. However, we remain excited about the long-term opportunity ahead of us. Second, 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 headcount and related investments in sales capacity and coverage globally to drive growth and also in R&D to drive product innovation and in G&A to support our growth. Although some of these investments will support growth in fiscal '22, many of these will be more long term in nature. Finally, we have experienced significant operating margin expansion this year, in part, from the near-complete elimination of travel and in-person events. As a distributed company, we previously had a significant amount of spending in these areas. We expect an increase in travel and event spending gradually over the course of fiscal '22. Given the higher investment profile and the return of travel and event expenses, we are currently expecting that our operating margin in fiscal '22 will be a few percentage points lower than in fiscal '21. Our investments reflect our optimism in the large market opportunity and how well we are positioned to capture that to deliver growth. We do expect that we will remain free cash flow positive in fiscal '22 and going forward. In summary, we had a strong third quarter and executed well in the current environment. We've built a strong foundation, have a tremendous market opportunity ahead of us and are making investments to capture that opportunity. With that, let's take questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Brent Thill with Jefferies. -------------------------------------------------------------------------------- Brent John Thill, Jefferies LLC, Research Division - Equity Analyst [2] -------------------------------------------------------------------------------- Shay, just as it relates to the pricing changes, I'm curious if you could give us your overview. There's been a lot of questions among your investors about the tailwind, headwind. What this is -- what you're seeing short term and the long-term effect from your perspective? And for Janesh, if you can just maybe comment, the license piece, obviously growing slower, but the SaaS component growing quick. I think that's the shift you want to see. But can you just talk about the dynamic you saw in license versus SaaS in the quarter and kind of how you're balancing that going forward? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [3] -------------------------------------------------------------------------------- Sure. I'll start. Brent, thanks for the question. When it comes to our subscriptions, over the last few years, we introduced an enterprise subscription tier and we started off with having significant value in it in our orchestration capabilities that we allowed and gave to self-manage customers to be able to go and run it themselves, whether it's our own built-in orchestration systems or our Kubernetes integration. When we joined forces with Endgame, we also added to the enterprise subscription tier our endpoint product, an Elastic Endgame support. And now with searchable snapshots and the cold and frozen tier that we believe provides significant value to our customers even more, like the ability to decouple compute from storage, as I mentioned, and the ability to really drive down the cost per gigabyte at the expense of speed, we -- and we placed that under the enterprise subscription. We thought it's a good opportunity to update and to reflect the enterprise subscription price point to reflect all the additional value that we ended up adding over the year-end, which is quite a bit. So that's the story behind the change. Very happy about it. The reaction, as I mentioned, on the script around searchable snapshots and the excitement about the ability to have a single technology stack that provides both is resonating really well with our customer base and the ability to add more data and store data longer at Elastic and then have a toggle between fast and slightly more expensive on the storage side or slower and have more scale and flexibility, it's something that our customers love being able to have access to over the next few quarters. When it comes to the -- its effect over short term or long term, we think that over the long term, these values that we put will end up providing a tailwind, starting from endpoint -- obviously, endpoint security being put into the enterprise subscription and then now with searchable snapshots and everything that comes with it. But that's going to be gradual and take time. So we don't expect any immediate tailwind as a result of it. -------------------------------------------------------------------------------- Janesh Moorjani, Elastic N.V. - CFO [4] -------------------------------------------------------------------------------- And Brent, just to follow up on the question about the self-managed business, nothing specific to highlight there beyond -- you touched on the key issue already, which was that we've seen customers continue to express a preference for cloud, particularly in light of everything happening in the context of the pandemic. And as we've said before, our growth in SaaS will generally mirror those customer preferences and where their workloads reside. So that's what we've seen. And SaaS will continue to grow faster than the business overall, specifically within the self-managed business, if I disaggregate that and look just at the license piece. To be honest, that's -- as we've said before that that's not really a number we focus on because we focus primarily on the overall subscription, and we just sell ACV. And that license number is a little bit of an artifact of accounting, and there's a number of different factors that can affect that. So there's nothing in particular that I would call out there. It's really the continued emphasis on cloud that we see our customers continuing to drive. And our market opportunity is large. Our penetration rates are still low. So I think we have plenty of room to grow on both the self-managed as well as the SaaS side, and we're investing towards that. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- The next question is from Tyler Radke with Citi. -------------------------------------------------------------------------------- Tyler Maverick Radke, Citigroup Inc., Research Division - VP & Senior Analyst [6] -------------------------------------------------------------------------------- Shay, I wanted to ask you about the licensing change that was announced recently. And I think there's been some debate out there in the open source community on whether this licensing change is favorable for the Elastic community. And I guess for those that -- those developers and members of the community that are concerned that this is kind of moving away from open source, I guess what do you say to them? And what's kind of your confidence level that you can continue to sustain a really robust community and make sure that your community members are satisfied with the licensing change? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [7] -------------------------------------------------------------------------------- Yes. Of course. So first of all, we announced the licensing change, and the vast reaction from our customer and our user base was to be perfectly fine with it. One of the reasons for it, by the way, is that over the last 3 years, we've -- since we introduced our Elastic License, the vast majority of our user base, north of a 90%, have been downloading and using our distribution that already uses the Elastic License. And they've been happy with it and excited about the significant innovation that was driven into that proprietary tier that is governed by our Elastic License. And those innovations include both [BC] pains like SIEM, Elastic SIEM or Observability tool suite or APM or App Search and Workplace Search as well as smaller, more inherent features into our stack. And those users are perfectly fine with the change, they -- it was a nonevent for them. And we actually provided them with more options by giving them a choice between both the Elastic License v2 and another one with SSPL as well, that MongoDB adopted or created. That's the vast majority of the customer base that we have. Obviously, there's some that care a lot about the pureness of an open source license of one or another. But the vast majority of our community are totally happy with our products, our innovation, and I'm very confident about our ability to go and continue to deliver value for this community and the customer set. -------------------------------------------------------------------------------- Tyler Maverick Radke, Citigroup Inc., Research Division - VP & Senior Analyst [8] -------------------------------------------------------------------------------- Great. And then if I could sneak in a follow-up, either for Janesh or you again, Shay. If I just look at the customers spending more than $100,000 with you, the growth in that number has come down a little bit through this year, presumably because of the pandemic. But just wanted to get your thoughts about how we should think about kind of the larger deal activity, particularly as you're heading into your seasonally strongest Q4 here. And I know that's been a focus for you in terms of expansions within larger customers. -------------------------------------------------------------------------------- Janesh Moorjani, Elastic N.V. - CFO [9] -------------------------------------------------------------------------------- Yes. Tyler, I'm happy to take that. So as I look at the customer additions that we had in Q3, whether it's the total customer account or the customer is more than $100,000 ACV, we were actually quite pleased with the performance there. To your point, the number of net adds in those -- both of those numbers has been consistent with the prior few quarters and in light -- in line with what we've experienced during the pandemic. So there was no surprises on that front for us. I think it actually played out quite nicely. And I think looking ahead to Q4, it's obviously early. To your point, we've got a fair amount of business to get done, and it's our seasonally largest quarter and March and April and April, in particular, tends to be a very busy month. But the good news for us is that the sales team has continued to work really well over the course of this past year. As you've seen, strong execution for the first 3 quarters and just overall disciplined execution. So we feel pretty good about the outlook that we've provided here for Q4. There's still a lot to get done. So it's early days, and there's obviously still all of the effects of the pandemic out there that we deal with, but also some significant structural tailwinds that we've talked about with preferences for customers shifting towards our solutions. Shay touched on a number of those examples. I think those all end up being catalysts for us. So as I think about Q4, all of these things are baked into the outlook that I provided, and we're confident in our outlook for the year. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- The next question is from Raimo Lenschow with Barclays. -------------------------------------------------------------------------------- Raimo Lenschow, Barclays Bank PLC, Research Division - MD & Analyst [11] -------------------------------------------------------------------------------- Congrats from me. I want to start with one bigger picture question, Shay. You are in beta now for schema on read. Historically, you've been more schema on write. Schema on read has been more something that a number competitor of yours is kind of associated with. What does it mean? Is this just like a small add-on thing? Or do you need to think slightly more bigger picture about the changes coming that way? And then I have one follow-up. -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [12] -------------------------------------------------------------------------------- Yes. Of course, I can answer it. My -- first of all, we're very excited about schema on read. We're search people. So schema on write is what we wake up in the morning and think about because we want to return a response in milliseconds. And the fact that we index everything by default and provides snappy results is what we pride ourselves, and that's an extremely difficult technical challenge to have. I think we're one of the only companies out there that provide it as a data company, if that makes sense. Over the last couple of years, we worked and explored in trying to support schema on read next to schema on write in a way that it still works and behaves like our schema on write, except that it's slower. And I'm extremely happy with the team being able to provide this core capability into our stack. The way that I think it's going to manifest itself is by providing more flexibility and more ease of use when it comes to onboarding new type of data sets before you know exactly how the data is structured. And also when it comes to people that really wants to control how much data they end up storing in schema on read versus schema on write. This is a stack level or like our technology stack level features. So it's more core, and we've implemented it at a foundational level. And now the next step is for all of our solutions, think about like the Security solution, Observability solution and our Enterprise Search solutions to start to take care of that -- make use of these features in its own curated workflows. I think over the upcoming few quarters, this feature will end up reflecting itself in various areas. And I hope that our users would be very happy about it because we will be one of the only platform -- data platforms out there that provide both schema on write and schema on read with a toggle of a button. And that's exciting, very exciting to me. -------------------------------------------------------------------------------- Raimo Lenschow, Barclays Bank PLC, Research Division - MD & Analyst [13] -------------------------------------------------------------------------------- Yes. Exactly. Yes. That should be very exciting. The -- and then one follow-up for Janesh. Like if you think about the environment over the last year and then potentially kind of improvements going forward, there's obviously several vectors that you need to think about in terms of like number of deals, deal size, closure rates, et cetera. From what you can see so far, have any of those changed over the last years? And as we kind of think about recovery going forward, where do you think it will start kind of manifesting itself first? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [14] -------------------------------------------------------------------------------- Yes. It's a great question, Raimo. And I wish I had the economic crystal ball to answer that question well enough. I can tell you that so far, what we've seen and the way Q3 played out was very similar to the prior quarters. We've not seen any significant shift. We've not seen any significant changes or trends. I think if I had to point to maybe one trend where things start to open up a little bit more in the economies when economies start to come back a little bit more, I think that's where we started to see a little bit more activity, which was really as expected. If I think about it in terms of verticals, the same COVID-impacted verticals continue to be impacted. We did do some pretty good deals in those verticals as well. But I think it's too early to call it a trend or a recovery in those areas. If I think about it from a segment lens, again, it was pretty much straight down the middle of the fairway for us in terms of comparing it to prior quarters. SMB continue to be resilient, not as strong as pre-pandemic levels, but very much in line with what we've seen here over the course of fiscal '21 during the pandemic. So I think looking ahead, it will be -- we're quite watchful as we look at all these different inputs. One of the good things for us is we are balanced across geography and segments and verticals. So as we see signs of recovery, then we obviously factor that into our thinking and our model. But as I think about fiscal '22, to me, it seems like the economic recovery will be much more gradual. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- The next question is from Brad Reback with Stifel. -------------------------------------------------------------------------------- Brad Robert Reback, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [16] -------------------------------------------------------------------------------- Great. Shay, as you look at usage on the SaaS platform, what has surprised you the most how people are using the product? And maybe how has that sort of modified your future development? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [17] -------------------------------------------------------------------------------- Of course, I -- maybe I'll answer it in multiple ways. I think -- I don't know if it's a surprise, but things to call out that -- we saw that meant more for our customers. The first one is just the side that we provide them support across multiple cloud vendors. We see more and more customers and users, especially in larger enterprises that like the fact that we provide a seamless experience across cloud vendors, whether it's Google Cloud, AWS or Microsoft. And we're also taking the extra steps to natively integrate with each one of them, whether it's billing, whether it's around security, whether it's around shipping, relevant data sources, things around those lines. And I'd like to call out one of the more highly requested features that we had that we've shipped in last -- in the quarter, which is the -- our cross-cluster search and cross-cluster replication. That's pretty unique if you think about it -- if you think about what we do as data because data has gravity to it and a logging solution or -- an application that produces logging notes to produce a significant amount of data, you would want to deploy us next to that application. So if you have a trading application, you would want in London, you would want to deploy us in London; and then if there's one in Hong Kong or New York, then you would want to deploy us next to that in various regions on -- even in the same cloud provider. And we provided the ability to cross search across these deployments without having to move the data around, which end up being very expensive. And obviously, it takes a long -- a lot of time. That was one of the more highly requested features in our cloud, which, to me, speaks about the fact that almost all the companies out there today are now multi-regional, whether it's for high availability or for sovereignty or privacy or many other reasons. And several companies out there as well are multi-cloud. And the fact that we give them the choice to store the data where they want, and then we'll go and do the hard work of searching across all of it very efficiently, that's something that resonates really well with our customers. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- The next question is from Kash Rangan with Goldman Sachs. -------------------------------------------------------------------------------- Kasthuri Gopalan Rangan, Goldman Sachs Group, Inc., Research Division - Analyst [19] -------------------------------------------------------------------------------- Congrats for the quarter. One question for you -- each of you, Janesh and Shay. One for you, Janesh. If you could you just talk about the investments you're going to be making. What time will you be commencing these investments? Is it sales and marketing or a combination of sales and marketing, research development. I'm proud that you've got a really, really productive sales model. I'm curious, what are you looking to achieve? And I know you did say that you'll be accelerating your investments. I suppose that would mean that, that should lead to acceleration in growth as well. But I just want to clarify that the investment timing and the payoff timing, what exactly are you looking for there? And one for you, Shay. It does look like when you -- maybe it's just a bit of a comment that is applicable to the hyperscalers. You've seen generally somewhat of a U-shape, maybe even a V-shape recovery among the public clouds and even some of the larger companies like a ServiceNow have been talking about a recovery. It feels like in your space, it seems to be stretched out a little bit more. I'm just curious if you can just add a little bit more color on why it is taking a little bit longer in your segment of the software industry granted that your value proposition is probably you've been making all these changes, which are great. Just curious, why is it taking a little bit longer in this segment versus the broader segment of software? -------------------------------------------------------------------------------- Janesh Moorjani, Elastic N.V. - CFO [20] -------------------------------------------------------------------------------- Okay, Kash. So maybe I'll answer the first part. The investments that we're intending to make, clearly, that's based on the strength we've seen so far this year. And so we are accelerating our investments that will start in Q4 itself and extend into fiscal '22. And really, the goal for us is to address the large long-term opportunity that we see ahead of us. It's to get out ahead of the pandemic and invest in anticipation of driving that growth. In terms of where the investments will be, it will be across all functions. So clearly, investments in the sales organization, on the marketing side as well, but also in the engineering teams in R&D as well as in the G&A functions needed to support all of that growth and scale of the business. So as you think about the nature of those investments, some of those can be a little bit more short-term-oriented, but many of them are, in fact, long-term-oriented. Investments in R&D, investments in some of the sales motions that we need to continue to scale, I think those will return -- will create returns in the longer term. But clearly, there's an intent to drive some level of return in fiscal '22 as well. So we lay all of that out for you in more detail when we come back on the next call and lay out our guidance for the year. But I'd say it's a multiyear horizon form of investment. And what gives us the confidence in that is just the signs that we see from our customers that their spending priorities continue to shift towards areas where we are very well positioned. So despite the headwinds we might face from the pandemic in the near term, we think it's important for us to invest through the cycle so that when we all come out of this on the other side, we'll be very well positioned to capture the opportunity. I'll -- Shay, you want to take the other part of the question? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [21] -------------------------------------------------------------------------------- Yes. I'll take it. So in terms of what we see when it comes to the recovery, I'll just start with saying that I'm very happy and proud of the team's execution in this context. And we delivered strong results in the last few quarters and we've overachieved. And that's a testament to I think the value that we're creating to our customer base, first and foremost, but also just to the resiliency and execution of our company as a whole and the team members that we have there. When it comes to the shape of the recovery, it's hard for me to say if it's going to be U-shape, V-shape or linear extrapolation or something along those lines. What I will say is that we do see the effects of the pandemic, they're still out there. People are still working from home. Our sales cycles are slightly longer. It takes a bit more work. And it requires, I don't know, another approval in the chain of command of approvals for spend. With us, we managed to go and get them, but it's definitely not as it was before the pandemic hit, and there's more scrutiny around spend. At the same time, we are seeing cases where there's customers in our user base who's more eager and excited about moving to cloud. But I mentioned in the previous call, our customers tend to move to the cloud as their workloads end up moving to the cloud because they're the ones that generate data and they care about deploying Elastic next to their workloads. And as long as they're not moving their actual workloads to the cloud that generates the data, whether it's security data in SIEM or whether it's Observability data like logging, then they'll end up preferring to run it on-prem or in a self-managed way. And in that case, I'm encouraged by the fact that you can still go to these customers and tell them, "Hey, like you can still deploy us next to your workloads now and self manage. And then when you move to the cloud, we'll be there for you. Regardless of whichever cloud vendor you choose or region, we can actually go and support a hybrid deployment while you're at it." -------------------------------------------------------------------------------- Kasthuri Gopalan Rangan, Goldman Sachs Group, Inc., Research Division - Analyst [22] -------------------------------------------------------------------------------- Got it. So there's probably a lag, that's probably a good thing, gives you good visibility. Also very quickly, any changes in the competitive environment? Pretty stable or any mild fluctuations you see there? And that's it from me. -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [23] -------------------------------------------------------------------------------- Sure. We haven't seen any change from a competitive environment versus previous quarters from our perspective. And we feel very good about our strength in the Observability story, and we're ramping up. And within the SIEM market, we're pacing extremely fast to get to a point where our SIEM product is mature and can take on feature-by-feature replacement of other popular SIEM vendors, and we're excited about the progress of folding Endpoint Security into our stack, and that's going to be -- that's going to take a few more quarters. But other than that, no, we haven't seen any change from a competitive perspective. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- The next question is from Matt Hedberg with RBC Capital Markets. -------------------------------------------------------------------------------- Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [25] -------------------------------------------------------------------------------- Shay, I wanted to ask -- go back to the SSPL. It sounds like no real change to the community or partners. But a couple of days after you made the announcement, AWS had a blog post indicating they were going to fork the code. I'm curious, what has the reaction been from sort of the broader user base to that? And does it mean at some point that there could still be even a tighter relationship with AWS at some point? I'm just sort of curious on the status of that. -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [26] -------------------------------------------------------------------------------- Yes. Of course. So we changed our license. And just to clarify, we changed the license to be dual licensed with both SSPL and the Elastic License. Each one basically serves a different camp that cares about different aspects of -- in the licensing ecosystem, if you will. And we got great reaction for our Elastic License v2, by the way, which we simplified while still maintaining the protections. When it comes to the announcement of work, let's say, we've been dealing with Amazon efforts in creating of work, not creating of work, open distro and try to take Elastic Search and start to be in control of its distribution channels. And I've been very happy with our ability to go and control it and being able to go and provide more value and more differentiation through proprietary features that already exists now, right? It's like in the past 3 years, we worked very hard to add significant amount of proprietary differentiation and get to a point where any type of changes will not matter that much because I think our users just will vote with their feet and have been voting with their feet when it comes to using our product. When it comes to looking forward, nothing is off the table from my perspective. To me, this license change have been drawing a line in the sand when it comes to saying, hey, like that level of what we believe to be brand and trademark abuse, and we're going to courts around it and things along those lines, we're changing the license to draw a stronger line in the sand. But at the same time, we're very happy to work with Amazon if they decide to do -- to work with us. We're already working with their Marketplace teams and other functions, and we will be happy to work with them. It just needs to be under mutual terms if that makes sense. -------------------------------------------------------------------------------- Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [27] -------------------------------------------------------------------------------- Got it. That makes sense. That's super helpful. And then I guess, Enterprise Search, you guys -- we've been talking about this for a long time. Partners seem really, really excited about that. I guess, Shay, where are we in sort of the maturation of Enterprise Search in terms of sort of wiring up additional API integrations? I know you talked about adding Box and Jira Cloud and Confluence Cloud. But just sort of curious on where we're at there and what are you most excited about in terms of usage of Enterprise Search? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [28] -------------------------------------------------------------------------------- Yes. Of course. There's a few things that I'm excited about. The first part is Workplace Search, which is a relatively new product. If you think about probably every company in the world today, the companies became more virtual, they generate more data in digital mechanisms, they chat more, send more e-mails, write more documents versus face-to-face meetings. And all of that is amazing IP that you just want to put at the hands of every single employee in the company and have it be searchable. Obviously, with the right controls and privacy controls and things along those lines, and that's something that we've done at Elastic, and I'm happy to be able to provide that to all of our customer base. That's the thing that makes me excited about Workplace Search, specifically. It's a new product. We're still working very hard to standardize it; build, as you said, more connectors; get to a point where other users and customers can build their own connectors for their own data set. So it's just early phases of it, but we built this product as a distributed company for the needs of a distributed company. And I think that's being realized by a whole set of companies out there that are now suddenly found themselves working in a decentralized fashion. I think the other part is App Search, which we've invested at, but we -- the main focus was to get to a point where we can shift Workplace Search. And to me, App Search is about how quickly and how easily can we add a search box to your website or to your application. And we've made some investments there. And we announced today the web crawler. So we'll go and crawl a website or anything along those lines when it comes to providing more data so you can search over versus using like "raw Elastic Search," which tends to require more developer time and more interactions and more roll up your sleeves and go and build something to add a web search box to your website. And that part makes me excited because it means that our products become easier to use, more plug-and-play, more easier to adopt to across the IT ecosystem versus just developers, if you will. -------------------------------------------------------------------------------- Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [29] -------------------------------------------------------------------------------- Makes a lot of sense. Congrats on the quarter, guys. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- The next question is from Ittai Kidron from Oppenheimer. -------------------------------------------------------------------------------- Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [31] -------------------------------------------------------------------------------- Shay, maybe we can start with you, if you could double-click a little bit on the cloud business. How much of it, by the way, is done at the enterprise price tier versus in other price tiers? And with the change of licensing, have you seen any carryover from AWS Elastic Search? Have you seen any people move away from that service into yours? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [32] -------------------------------------------------------------------------------- Yes. Happy to answer. So I'll start with the enterprise subscription tier. So the enterprise subscription here is relatively new. And when we introduced it at Elastic, the biggest reason why someone would end up engaging with us on the enterprise subscription tier was actually for self-managed customers because we took our cloud product, packaged it and allowed users to run it themselves in case they couldn't run in the cloud for various reasons. They haven't migrated yet to the cloud or something like that. That's what we call Elastic Cloud Enterprise and now Elastic Cloud on Kubernetes. So for a pretty long period of time, the biggest value proposition in our enterprise subscription tier was actually just for self-managed. When we joined forces with Endgame, we added Endpoint Security, the Elastic Endgame -- Endpoint Security into the enterprise subscription. And we're working very hard, obviously, to fold all the endpoint capabilities into our stack. Obviously, that heavily applies to our cloud customers in this case. And now with searchable snapshots, that's even going to be even stronger, especially with the GA of our cold tier and the frozen tier that truly decouples storage from compute that will come in the next few quarters. So all of that, the feature set and the capabilities and the value in the enterprise subscription tier that applies to our cloud customers have been relatively recent, especially with searchable snapshot. So up until now, we haven't really seen a large adoption of it due to it, which is perfectly expected. But I think that we will start to see more and more adoption of our enterprise subscriptions tier for our cloud customers moving forward. -------------------------------------------------------------------------------- Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [33] -------------------------------------------------------------------------------- Okay. And as far as the AWS carryover? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [34] -------------------------------------------------------------------------------- Oh, yes, of course. So we see users migrating from AWS to Elastic, especially since we provided more advanced capabilities like private link and others or if they want to go and start to deploy on other cloud providers. And thanks to the differentiation of the -- of our feature set, I mean the size of it is always tricky to capture because you don't always know because our adoption cycle for these is mostly around self-service. Just someone coming in and start to create an account and start to migrate. So we -- it's -- took here an hour on this list if we try to go and quantify it. -------------------------------------------------------------------------------- Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [35] -------------------------------------------------------------------------------- Got it. And then as a follow-up, Janesh, on the expansion rate. Last quarter, you've talked about it dropping a little bit. It sounds like if I'm interpreting your commentary correct that it was perhaps stable this quarter. So maybe you can give us some color on that. And also in the context of the fourth quarter or tough compare, how should we think about that expansion rate in respect to that comment? -------------------------------------------------------------------------------- Janesh Moorjani, Elastic N.V. - CFO [36] -------------------------------------------------------------------------------- Yes. Happy to touch on that. I'll maybe just add one other thought on AWS as well, right, in terms of the comments that Shay made. I think we see some of those customers coming to us, coming to the Elastic Cloud from AWS because of the richness of the features. We've always seen that. I think the impact of licensing changes will provide a little bit of a tailwind, but I think it plays out over the medium to long term there. And then in terms of the net expansion rate, the -- yes, I think characterizing it as stable is the right way to think about it. It usually does bounce around by a couple of points here or there. And it remained essentially modestly above 130%, so very consistent with the last quarter. And if I think about that in terms of Q4 and how that might play out, look, I think depending on how the business unfolds in Q4, all of our customer metrics across new and renewals and expansions will just mirror that overall performance. So I'm not just discretely modeling a specific percentage myself at this stage. But overall, as I -- we've talked about on this call, we feel really good about the relevance of our solutions, the alignment to customer priorities and the opportunity ahead of us. So we'll execute here in the next couple of months and then come back and share more with you in 90 days' time. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- The next question is from Mark Murphy with JPMorgan. -------------------------------------------------------------------------------- Mark Ronald Murphy, JPMorgan Chase & Co, Research Division - MD [38] -------------------------------------------------------------------------------- Shay, I'm curious how Elastic and your customers processed the SolarWinds security breach and whether you're seeing any incremental opportunities there to capitalize on that. And also on the topic of security, just how is your visibility into doing some of the wholesale replacements of incumbent SIEMs out there in the marketplace? -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [39] -------------------------------------------------------------------------------- Yes. I'll start SolarWinds and we haven't seen -- first of all, we saw an increase in attention to security generally between -- within our customer base and our user base. So SolarWind definitely put security-conscious people into the forefront, and they're trying to think about, "Okay. How do we make sure that this doesn't happen to us?" And we have various answers to that question from features that we developed that actually apply directly to the SolarWinds breach to the ability to gather all of the data that is generated by supply chains to make sure that you try to find anomalies. And that's something that we do really well as a company and as a security product. But we haven't seen like any tailwind of someone going and suddenly buying our security products left and right or something like that. It's more of a thoughtful implementation and try to make sure that the aspects of SolarWind is being addressed by customers that end up adopting us for security use cases. When it comes to wholesale replacement, we GA-ed our SIEM solution, and I'll have a call out to our -- to the Endgame team to join us and the existing team that we have. The Endgame team and the team have done an amazing job in pulling forward a feature and releasing it sooner. We'll probably have a couple of more quarters to get to a point where we feel like the product can stand a wholesale replacement, if that makes sense, of an existing incumbent when it comes to feature-by-feature comparison. So today, we see obviously adoption of our SIEM product, but it's more around, hey, we're going to use the features as you use today, but we're also betting about the fact that we're going to be there for our customers in 2 quarters or 3 with the full set of features. That's where we stand. When it comes to actual replacements, the reason for replacements are the usual ones that you would expect from efficiency, speed to give answers to threat hunters out there, the applicability of our solution, the fact that we have worked really hard to fold Endpoint Security and SIEM and working on that, our vision when it comes to security and how much we try to address the biggest story and actually go and provide outcomes to customers versus try to mark a feature here and there in security. -------------------------------------------------------------------------------- Mark Ronald Murphy, JPMorgan Chase & Co, Research Division - MD [40] -------------------------------------------------------------------------------- Janesh, as a quick follow-up, I was looking at your total costs and expenses. I think they've only grown about 19% year-to-date. It's just very, very nice discipline. You've had the solid margin expansion. And you're now signaling you're going to ramp it up in fiscal '22. I'm wondering about any sense of magnitude. For instance, could you accelerate that closer to, say, 25% or 30% cost and expense growth into fiscal '22? Just anything to help us understand the magnitude of that comment. -------------------------------------------------------------------------------- Janesh Moorjani, Elastic N.V. - CFO [41] -------------------------------------------------------------------------------- Yes, Mark. So in terms of the investments we made this year, we consciously were a bit slower in our fiscal Q1, and then we've started to increase in Q2 and in Q3 as well. So you look at the sequential increase in spending in the last couple of quarters, it's sort of been in that $10 million to $15 million range. And you can then get into the implied expense guidance embedded in the Q4 numbers. And if I think about fiscal '22, as I said earlier in the call, we -- the way we're currently thinking about it is that the op margin will probably be a few points lower than fiscal '21. And then we break that out a little bit more discretely in terms of areas, investments and so forth as we work through our planning process. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would like to turn the conference back over to Shay Banon for any closing remarks. -------------------------------------------------------------------------------- Shay Banon, Elastic N.V. - Co-Founder, CEO & Executive Chairman [43] -------------------------------------------------------------------------------- Thank you. And thank you for joining us today. We're very pleased with our third quarter results and remain focused on addressing the large and exciting market opportunity ahead of us. Ciao. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.