Elastic NV at Needham Growth Conference Transcript

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

Question: Mike Cikos - Needham & Company, LLC - Analyst : Excellent. And two things before we go into it as well. Interesting and I appreciate you calling out vector at the store. Just a quick sound bite from like probably a year ago, there was a private database vendor that I was talking to when the market was still going through this debate of whether or not vector needed to be a standalone offering versus maybe more of a feature capability as part of another broader offering. And the private company, no skin the game, not necessarily competitive last, but volunteered on their own. They're just like, hey, everyone's trying to featurize Red Hat capability, Elastic had vector now for a handful of years. So kudos to them for being able to see that. So good on you guys for going to where the puck was going before we went there.

Question: Mike Cikos - Needham & Company, LLC - Analyst : That's great. And I know -- I definitely want to hit on the technology while we have you here. I think one thing again the interest of just setting the table for the audience, I know the October quarter earnings feel like forever ago, but there were some interesting things that I think are probably worth highlighting. So maybe from a for a quick 30 second pitch, like what were some of the highlights? I know like the third consecutive quarter where you guys cited that, surge continues to accelerate now. But what else would you be pointing investors to from that quarter?

Question: Mike Cikos - Needham & Company, LLC - Analyst : It's great because I know that you guys also talk about customers, whether it's -- as a mark on the total customer base or as a mark on your higher spend cohort who is actually using Elastic from a gen AI perspective. I'm curious when you're having customers sign these commitments, are we at a point now where we can say like, hey, Cikos is going to come in and sign a commitment for $100? If gen AI is attached to that, that commitment now is maybe above 10% or above 20%, like are we getting to that or can we pinpoint it to that level of granularity or not necessarily?

Question: Mike Cikos - Needham & Company, LLC - Analyst : It's great to hear. And from a demand perspective again, I know we're all into the new year here. I think people are trying to get a sense of what you're hearing from customers, how our conversations tracking. I mean, obviously there's a lot of enthusiasm behind gen AI, but if I compare where we are now versus where we were a year ago, is there a reason to be maybe more optimistic or are you hearing anything on budgets as an example? Can you comment on that?

Question: Mike Cikos - Needham & Company, LLC - Analyst : And just to make sure we're doing our proper diligence here that flattish type behavior we're seeing out of SMB and maybe we can weave this into a broader conversation, but is that in any way related to competition or new entrants or change in win rates or is that really just a function of potentially the more -- the greater macro sensitivity that those SMB type organizations have?

Question: Mike Cikos - Needham & Company, LLC - Analyst : If I could just continue on that search piece, right? So if you have a customer that comes to you and maybe they wouldn't have come to you otherwise, right? Forget the ASP -- potential ASP up for a second. But like, are you hearing anecdotally from customers as far as the ROI that they're achieving or what kind of -- are they citing to you specific gains or enhancements that they wouldn't have gotten otherwise? Do you have a better feel or anything to quantify what the customers are receiving from that perspective?

Question: Mike Cikos - Needham & Company, LLC - Analyst : And for those customers as well, is there anything notable as far as what kind of companies are coming to the platform? Like in any way, is the customer profile changing as you see -- again, it's like self selecting, right? They're telling you they're coming for gen AI but like based on that, are they more tech focused or are they more manufacturing back? Is there anything vertical specific or sized employee base or it's really just across the whole [gamut]?

Question: Mike Cikos - Needham & Company, LLC - Analyst : Understood. Okay. And I again, you guys have a couple of different solutions here and a couple of different vectors. So I don't want overindex the search even though it is an exciting part of the story for sure. If we just look at security and observability for a second, right, there have been some announcements from other vendors on the competitive front and would be interested in hearing how has that competitive landscape changed for Elastic more recently.

Question: Mike Cikos - Needham & Company, LLC - Analyst : And if I just think out loud again, you guys have had this competitive dynamic for some time. But again, just given some of the changes out there, the characters that we're up against, is there a reason to think that the pipeline building that's going on for security and observability in anyway? Like I would imagine that it's accelerating in some way based on that competitive dynamic. But is that fair or is that still too early? Need more evidence building?

Question: Mike Cikos - Needham & Company, LLC - Analyst : Got it. And I want to shift to the tech for a second. Just because it really does feel like over the last year, the number of product announcements or enhancements seemingly -- it just feels like it's accelerated, right? And so as we exited calendar '24, go back to the November, December time frame, there were a couple of different announcements that I wanted to hit on. The first is the company had announced Elastic Search, the logsdb index mode that went GA in mid December. And just as a reminder for folks, what are the anticipated benefits for customers from this logsdb index mode.

Question: Mike Cikos - Needham & Company, LLC - Analyst : Terrific. And similarly, the Elastic Rerank model that was announced in December, a similar dynamic. But can you just walk us through what's the expected benefit then from this new reranking model?

Question: Mike Cikos - Needham & Company, LLC - Analyst : And I apologize for the background noise here. The radiator in the New York City office has gone a little crazy today between that and then the camera issues you were having earlier, we make quite the couple right now.

Question: Mike Cikos - Needham & Company, LLC - Analyst : Excellent. And just the product announcement that I wanted to hit on specifically from this like December flurry of press releases we got. But on the security front, you guys had announced these expanded cloud detection and response capabilities. All coming from the single SIEM. And so what is it these new capabilities are delivering? And then is there a way to think of -- is this picking up spend that had previously been going to another competitor's tool? How do we start to compartmentalize where that incremental dollar is coming from?

Question: Mike Cikos - Needham & Company, LLC - Analyst : All right. Awesome. Sorry about that everyone. We're just making sure that we got some good audio going forward for the conversation. But Eric, if you could just bounce back into that question again, we were talking about the CDR capabilities.

Question: Mike Cikos - Needham & Company, LLC - Analyst : I can.

Question: Mike Cikos - Needham & Company, LLC - Analyst : All right. Just going back to the AI question, I guess when you're talking with customers and again they're hopefully they're communicating to you those, ROI and those productivity gains that they're talking to. But curious to hear, are those AI applications that people are currently deploying? Are you seeing an increasing volume of those movings production? And then the follow up is, are most of those applications today still internal facing or are we starting to see a greater volume of those AI based applications become more external facing?

Question: Mike Cikos - Needham & Company, LLC - Analyst : Great. And I do want to be true to my word again, if folks have questions, feel free to log them in, I know that we do have one here. I'm just going to read it off to you now. So the question goes, how do margins vary across search security and observability? What EBITDA margins can you ultimately achieve?

Question: Mike Cikos - Needham & Company, LLC - Analyst : Great. And I know we have just a couple more minutes here. I want to make sure that I'm tackling the go to market, there's a final topic. But earlier this year, Elastic had called out a shortfall in customer commitments. Maybe you can kind of walk us through the dynamics that caused that shortfall in the first place. And then obviously, we have the October quarter under our belt now. So Elastic feel like it's rectified, maybe some of those earlier concerns. Where are we in course correcting?

Question: Mike Cikos - Needham & Company, LLC - Analyst : Great. And I guess the follow up here, I think you guys have alluded to it, but just to make sure that investors are aware of that, that initial shortfall that occurred in Q1 I believe has been discussed as being something that will kind of carry with Elastic to play out through the financials over the course of the year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 8:00PM, ESTC.N - Elastic NV at Needham Growth Conference Just as a reminder for folks, why is that? And does it become more magnified as we move through the year or does it become more of a dissipating effect as we move through the year?

Question: Mike Cikos - Needham & Company, LLC - Analyst : Understood. Understood. Thank you for carving that out for everyone. And I know with that, we're done. So thank you to Eric for joining. Anthony and Janice you as well for the participation. And thank you to the audience. Eric, thank you so much.

Question: Mike Cikos - Needham & Company, LLC - Analyst : We'll do it again soon, but hopefully we'll get through the connectivity in a different way. But thank you so much.