Elastic NV Q1 2025 Earnings Call Transcript

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

Question: Matt Hedberg - RBC Capital Markets - Analyst : Great. Thanks, guys for the questions. Ash, I'll start with you. You touched on in the prepared remarks, but I just wanted to double-click on what you think maybe some of the most important items you're doing to improve the sales execution as a result of segmentation. What seems like it makes a lot of sense longer term. Is there any way to think about how long you're going -- how long it's going to take us till we should see improvements in terms of accelerating growth?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Very, very comprehensive. Thank you for that, Ash. And then, maybe if I could just squeeze one other one. I know we've all been focused a lot on the competitive opportunity and it really does feel like you've noted a number of wins in the quarter and new migration technology. I guess, I'm curious, is there any way for you to quantify maybe growth in that pipeline? And I guess I'm curious on what specifically are some of these migration tools doing. Do you think that the channel can also leverage to maybe accelerate these replacements?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Thanks a lot, Ash.

Question: Brent Thill - Jefferies LLC - Analyst : Ash, I think everyone would love to hear more about the segmentation changes. I guess when you think about what percent of your go-to-market team you changed out, is it an easy way to describe like we changed 50% of reps, 20% of our reps focus on different accounts? Is there an easy way to simplify this to understand what this means?

Question: Brent Thill - Jefferies LLC - Analyst : Okay. I just want to make sure I heard this right. You changed every vertical except Fed? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 9:00PM, ESTC.N - Q1 2025 Elastic NV Earnings Call

Question: Brent Thill - Jefferies LLC - Analyst : And I guess the natural follow-up is given the magnitude of that disruption, Janesh, why wasn't there a higher-level of cushion embedded in the guide to ensure that you gave your guys -- you gave yourself some wiggle room?

Question: Brent Thill - Jefferies LLC - Analyst : Great. Thank you.

Question: Pinjalim Bora - J.P. Morgan Securities LLC - Analyst : Hey, thank you for taking the question. Just again double-clicking on the changes and everything, specifically, on the lower-than-expected commitments. It seems like it's impacting both cloud and self-managed. I'm trying to understand if there is a plurality of commitments on one or the other. Was there any element of an impact from the price adjustments to self-manage that went into effect, I believe, in May? And in terms of macro, did you see any kind of increasing scrutiny on deals that might have worsened in July or later or would you say it's largely sales execution?

Question: Pinjalim Bora - J.P. Morgan Securities LLC - Analyst : Yeah. Understood. One more follow-up, Janesh, to you. Can you talk about the actual consumption run rate among your annual cloud customers? And how that has been tracking essentially relative to the committed consumption run rate? And maybe talk about the linearity of the cloud consumption trends in the last three months and into August? Thank you very much.

Question: Pinjalim Bora - J.P. Morgan Securities LLC - Analyst : Thank you.

Question: Tyler Radke - Citi - Analyst : Yeah. Thanks for taking the question. So I guess I just want to go back and understand the specifics of the shortfall a little bit better. So it sounds like it was mostly within the Enterprise segment, which presumably these are large renewal deals, and so -- or existing customers at least. And I guess if you aren't seeing any challenges on consumption, the implied cut to cloud is that just conservatism because you have sort of less backlog visibility? Or do you believe that the push out in these deals sort of delays new use cases and new ramps coming onto the cloud and it's sort of a timing because we need those commits in order for these use case to ramp up. Just help us understand that because it sounded like consumption was okay, but yet you're cutting kind of consumption expectations for the full 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. AUGUST 29, 2024 / 9:00PM, ESTC.N - Q1 2025 Elastic NV Earnings Call

Question: Tyler Radke - Citi - Analyst : Thank you for the detailed explanation, Janesh. I know there's a lot of moving pieces. The follow-up question, I wanted to ask you Ash, just around open-source, so obviously, in the gen-AI ecosystem, open-source is super important. I saw I think a couple of minutes before the earnings release came out, there was -- you announced the open-source license basically adding AGPL for the source code. Can you just talk about the significance of that announcement and just how you're sort of thinking about the strategy here particularly with the importance in the gen-AI market?

Question: Tyler Radke - Citi - Analyst : Thank you.

Question: Raimo Lenschow - Barclays - Analyst : Perfect. Thank you. You commented on the earlier part of the call already, Ash, about like the S3 and how people are working with that. What do you see in terms of those initial trials starting to convert over? And how is that helping -- could that help you with kind of second half, kind of reacquiring of new workloads, like is that already a factor that kind of could help us there? Then I had a follow-up for you guys.

Question: Raimo Lenschow - Barclays - Analyst : Okay, perfect. And then one for Janesh. Look, if you think about it, a lot of your sales guys will kind of probably need to restart the year or if you have to think about that. Like what are you thinking about cost and investments for the year and how that will flow out in the different quarters as well? Thank you.

Question: Raimo Lenschow - Barclays - Analyst : Okay. Perfect. Makes sense. Thanks for that.

Question: Koji Ikeda - BofA Global Research - Analyst : Yes. Hey, guys. Thanks for taking the questions. To go back to the sales execution part of the equation, I know, there's been a lot of focus on the Americas side, but you do have a pretty big international business too. And so the question is on the international go-to-market strategy, specifically, was there a similar strategy that was going to happen in international? And was that put on pause or were the learnings that you've learned -- that you've seen over the past few months within the Americas, are you taking those learnings and maybe implementing a similar change internationally?

Question: Koji Ikeda - BofA Global Research - Analyst : Got it. Thank you. And then just a follow-up for Janesh. When I look at the RPO sequential growth in the first quarter, down from the fourth quarter. And when I look historically, when the first quarter starts off down, the self-managed portion of subscription does follow somewhat of a predictable pattern. So just curious if you could add some color to how we should be thinking about RPO in relation to self-managed revenue. Thank you.

Question: Koji Ikeda - BofA Global Research - Analyst : Got it. Thanks, Ash. Thanks, Janesh. Thank you.

Question: Joe Vandrick - Scotiabank GMB - Analyst : Hi. This is Joe Vandrick on for Patrick Colville. Ash, you mentioned that search accelerated in the quarter. So I'm wondering, does that mean security and observability performed slightly worse than expected?

Question: Joe Vandrick - Scotiabank GMB - Analyst : That makes sense. And for my follow-up, I guess, can you just talk a little bit about the competitive environment in AI Enterprise Search, why Elastic tends to win? And then also what will it take to more significantly penetrate your customer base for these kind of gen-AI search use cases? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 9:00PM, ESTC.N - Q1 2025 Elastic NV Earnings Call

Question: Joe Vandrick - Scotiabank GMB - Analyst : Got it. Thank you.

Question: Rob Owens - Piper Sandler Companies - Analyst : Yeah. Thanks for taking my question. Want to drill down a little bit more on the security side and the Elastic Express Migration. And just what you're seeing competitively, especially since I think a decent chunk of that Splunk base is potentially up for grabs what you're seeing competitively and customers' willingness to switch? Thanks.

Question: Rob Owens - Piper Sandler Companies - Analyst : Any thoughts on mirroring this on the observability side as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 9:00PM, ESTC.N - Q1 2025 Elastic NV Earnings Call

Question: Rob Owens - Piper Sandler Companies - Analyst : Thank you.

Question: Andrew Nowinski - Wells Fargo Securities, LLC - Analyst : Thanks. I'll just keep it quick. Can you guys quantify how many deals or the quantity or the magnitude of the deals that slipped out of the quarter? Just trying to get an understanding of maybe what the quarter could have looked like and what kind of cushion you have going into next quarter.

Question: Andrew Nowinski - Wells Fargo Securities, LLC - Analyst : Thank you. And just as a follow-up, I guess, if you're worried these deals aren't going to close over the next take more than a couple -- more than one quarter to close, it sounds like it may be somewhat out of your control. It's not necessarily self-inflicted with the simple salesperson change to the account. I mean is there -- are you concerned about competition of any of these accounts with the deals that slipped?

Question: Andrew Nowinski - Wells Fargo Securities, LLC - Analyst : Okay, got it. Thank you.

Question: Joel Fishbein - Truist Securities - Analyst : Thanks for taking the question. I guess, Janesh, just as a follow-up to Andy's question, how did you go about formulating the guidance and what confidence that you can give us that the numbers are achievable for the 2Q and the full year?

Question: Joel Fishbein - Truist Securities - Analyst : Great. Thank you so much.