Elastic NV at Citi Global TMT Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tyler Radke - Citi Investment Research (US) - Analyst : And before we get into the recent results, which I know are very topical, there's a lot of investors in here that may have different familiarity with Elastic, the company. Can you just quickly give a synopsis of who Elastic is and how does that vision look with all the excitement around AI?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Got it. Great. So let's dive into it. You're fresh up Q1 results last week, which I think -- in terms of how the quarter played out from a revenue consumption perspective, I think things look relatively straightforward, but you had a unforeseen go-to-market impact that led you to have a shortfall on commitments. And ultimately, you cut the full-year guide by a couple of points. Take us through what happened. What was kind of the biggest surprise that you saw during the quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 4:30PM, ESTC.N - Elastic NV at Citi Global TMT Conference

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Yeah. So I guess going back to the change in -- I think as you described also in the earnings call, this was a pretty broad-based change that impacted and almost every rep in the US, not only the re-segmentation, but the introduction of these new greenfields. So I guess when you initially set guidance, did you just think that this is going to be a pretty smooth transition? Or what was sort of the underlying assumption for this transition? And I guess beyond the bookings shortfall at the end of the quarter, what were like the signals that you saw that this transition was going to be a bit bumpier than you had planned?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Okay. I mean, in some ways, it sounds like the customers should be even more involved with -- sorry, the sales reps are even more involved with customers if they have fewer accounts to focus on. (multiple speakers) So I guess in terms of the specific steps that you're taking to remediate this issue, and there's only one of you and one of Ash, which I'm sure that's helpful getting involved. But what are you doing to -- what were the solutions that you've sort of identified to remediate this issue?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Okay. Got it. So obviously with the -- anytime you have these unforeseen shortfalls, they can be pretty painful. But I think what investors want to get comfortable around is how do we not get surprised again? So maybe as you think about the guidance update, which did have a decent cut to REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 4:30PM, ESTC.N - Elastic NV at Citi Global TMT Conference the guide, even in spite of a bit of a beat in the quarter, can you talk about the assumptions that you embedded? Are you assuming that this suppressed bookings environment continues throughout the full year? Does it resolve itself by Q2? And then I'd also be curious on the EMEA point that you made, which does, by the way, line up with even how Microsoft talked about Azure softness. Is that something you're seeing continuing here in the Q2 as well? And have you sort of downgraded EMEA expectations for the rest of the year?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Right. Okay. That makes sense. One of the other topics that I think maybe get overlooked at earnings, given all the moving pieces on the guide was the announcement of a return to open source AGPL licensing for on kind of the core Elasticsearch product.

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Yes, I'd love to talk about that. What sort of prompted the move at this point? why now? And I would imagine you'd love to make that announcement under better circumstances with go-to market issue. But walk us through it.

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Go it. So you sort of feel like the -- maybe, bottoms-up grassroots developer adoption of the vector database was -- maybe it wasn't right where you wanted to be if that's the right way to think about it. But this sort of is an accelerant to that.

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Got it. Okay. Shifting to the products and the GenAI stuff, because I think a lot of that was -- we were distracted by the go-to market issue last quarter. But just for folks in the room, can you sort of just articulate what Elastic offers in terms of GenAI? ESRE is often used. I think it's kind of an umbrella term to describe a suite of products. But what is your approach between vector databases, different types of search? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 4:30PM, ESTC.N - Elastic NV at Citi Global TMT Conference

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Got it. And as you think about the competitive environment within vector search and GenAI, right, you have a number of private companies in the space, be it Pinecone or Weaviate. You also have vector database offerings from companies like MongoDB or even Postgres. How do you sort of see yourself like -- what type of use case -- is it anything around search? Or are you trying to kind of go after the broader vector database market too for GenAI applications?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : And your comment earlier where you sort of saw more of a mix shift towards search, at least in terms of the bookings. And I think you talked about on the call that search was actually reaccelerating in terms of revenue growth, perhaps outgrowing the total company business, is that all being driven by AI? And I guess how close are we to the ESRE family of products really starting to move the needle in terms of driving revenue?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Okay. I know we've spent a lot of time talking about search in ESRE and everything, but I did want to talk a little bit about the other businesses, too, which are just as important. On the logging and SIEM security analytics side, what have you seen thus far, just with Cisco now I think owning Splunk for two quarters now, if I'm not mistaken? How are you sort of positioning your team to go after that opportunity? And have you seen any potential benefits or any positive signals that you're seeing in terms of being able to go out and capture that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 4:30PM, ESTC.N - Elastic NV at Citi Global TMT Conference

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Okay. Great. And then on security, I'd be remiss if I didn't ask you just post the CrowdStrike outage and all the fallout on that, I mean, I guess a couple of perspectives. Number one, did you see any material share gain opportunity in terms of Elastic's own endpoint products and then did that sort of trigger more logging use cases or security analytics use cases that you saw during the quarter?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Okay. Got it. One of the product announcements that did not get as much airtime this call, but it's sort of coming down the pike and I know there's a lot of excitement around it, is with serverless. And so I was wondering if you could sort of just talk about where we're at with that -- what the benefits are for customers and then how investors should think about the potential pricing changes and how to think about the rollout of that across your customers?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Right. And just thinking about the financial impacts of that, obviously, tough to predict, because it's in beta. But just with the separation of compute and storage, is there any risk of revenue loss. If there's more efficient storage or conversely, maybe the serverless pricing is going to be at a premium. And so if there is conversions, that turns to price tailwind?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Okay. Very clear. I guess on margins, we didn't talk too much about that, but despite the top-line shortfall, you actually did take up margins. If you could sort of speak to the actions that you did? And then philosophically, how do you sort of think about long-term growth and profitability of Elastic? Do you aspire to be a Rule of 40 company? How do you sort of think about that?

Question: Tyler Radke - Citi Investment Research (US) - Analyst : Great. Well, I think we are out of time, Janesh. Thank you very much. That was a lot of detail. Appreciate the explanation, and have a good rest of the day, everyone. Thank you.