Elastic NV Q2 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 for taking my questions, guys. Congrats on the results. Really a nice bounce-back quarter. There's a lot of things that stood out to me. I think the success in cross-selling, but also Janesh, you said something about larger enterprise, particularly their consumption patterns accelerated. I'm wondering if you could double-click on that. Is there any -- was there any commonality there that drove that trend?

Question: Matt Hedberg - RBC Capital Markets - Analyst : Well, that's great. Well, it seems like there's others that are also talking about better consumption trends from last night. Maybe just, Ash, for you, it was great to see the sales force bounce back here. I'm wondering, is there anything that you'd put your finger on that drove to that better sales execution? I know there was a lot of changes in 1Q. But curious if you can understand sort of what the positive change factor was this quarter. And I know Janesh is being conservative in back half guidance, but the opportunity for continued improvement there, just sort of curious on your thoughts there.

Question: Matt Hedberg - RBC Capital Markets - Analyst : Great. And Janesh, it's been great working with you. Best of luck in your future endeavors.

Question: Pinjalim Bora - JPMorgan Chase & Co - Analyst : Great. Thanks for taking our questions. Congrats on the quarter. Janesh, from me as well, great working with you and all the best, and Eric, congrats on the interim role. I want to ask you, Ash, on binary quantization. Seems like it's a differentiation for Elastic from a vector D perspective. But my understanding is quantization is kind of a trade-off between accuracy and cost. Help me understand how pervasive is that going to be across kind of different GenAI use cases?

Question: Pinjalim Bora - JPMorgan Chase & Co - Analyst : Yes, understood. Janesh, one question for you. It seems like a very strong cloud consumption quarter. But when I look at the RPO numbers, especially on the sequential trend, it seems a little bit muted, given that a number of deals pushed out of last quarter. You had noted you had closed a lot of those. So maybe how would you characterize kind of the bookings cadence at this point versus historical norms, given the changes that you see? It's improving but we are not there yet.

Question: Tyler Radke - Citi - Analyst : Yeah, thanks for taking the question, and Janesh, it's been great working with you, and all the best. Good to see you leave on a high note here. Ash, I wanted to go back to some of the GenAI use cases. Sounded like a very strong quarter in terms of commitments, the doubling quarter-over-quarter. But I'm curious how you're kind of seeing those types of use cases unfold. It sounded like you referenced some use cases where you're kind of the backbone in terms of being the vector database supporting 40 different use cases with agents and chatbots and then some other use cases just around semantic search. So maybe help us understand, are you kind of orienting the sales force around kind of discrete go-to-market motions, particularly around GenAI to serve those use cases? Just give us a flavor of kind of how you're standardizing the GenAI go-to-market and use case evaluation here?

Question: Tyler Radke - Citi - Analyst : Janesh, for you, just going back to the commentary around the large customers consumption in the quarter. I guess as you think about the stronger-than-expected trends that you saw, would you say that that was kind of onetime in nature? Or do you -- was this kind of onboarding new use cases? And just to clarify, you're saying that you're seeing these strong trends continue, you're just not embedding it into the guidance? Just wanted to clarify that.

Question: Tyler Radke - Citi - Analyst : Yes. I guess you're guiding before Thanksgiving for the first time so a lot more days in the quarter.

Question: Tyler Radke - Citi - Analyst : All right. Thanks, Janesh. All the best.

Question: Koji Ikeda - Bank of America - Analyst : Yeah. Hey, guys. Thanks. Thanks for taking the questions. Janesh, thanks for everything. All the best to you. And Eric, looking forward to working with you. So I have a question on the sales organization, and I guess the question is on a scale of 1 to 10, how would you rate where you are today with the sales org? 10 being back in business and fully ramped on the new strategy. Where are you at today? And if it's less than 10, what needs to happen to get it to 10? The reason why I ask is the fiscal second quarter results are really strong. But I keep staring at that implied fiscal fourth quarter exit growth rate of 11%. So I'm just wondering if we could still see effects of the sales org change playing out over the coming quarters. Or is there just massive conservatism embedded in the guide?

Question: Koji Ikeda - Bank of America - Analyst : Okay. And just one follow-up here. Ash, in your prepared remarks, you talked about three deals, generative AI deals being $1 million in annual contract value. Super impressive there. The question here is, are these for specific generative AI projects? And what I'm trying to understand is that we've been waiting for these big commitments to come. And so if these are for specific generative AI contracts, does that really imply that as experiences, generative AI experiences come to fruition, I mean, Elastic could be a beneficiary of lots of these big, big six, seven-figure deals for very specific generative AI projects?

Question: Koji Ikeda - Bank of America - Analyst : Thanks, Ash. Thanks for taking the question, guys. Thank you.

Question: Brent Thill - Jefferies - Analyst : Thanks, Ash. On the go-to-market, I guess I'm confused. You say that you're pleased with your sales team, yet your RPO is flat Q1 to Q2. Your competitors are growing RPO twice the speed of you. And so I'm just -- I'm trying to reconcile this. Is it you're pleased with a pipeline that's building back because it hasn't converted in the backlog yet? So I just want to make sure we clarify what you mean by that.

Question: Brent Thill - Jefferies - Analyst : Okay. And when you think about search as a percent of total revenue versus broader observability, is it still roughly a 30-70 split or is that changed?

Question: Raimo Lenschow - Barclays Bank - Analyst : Can I stay on search and maybe one more question? Ash, if you think about the offering there, and you have a very large installed base in search because that's kind of where you guys started out, how do you think about the opportunity there in terms of going back to all of them or to a lot of them and just kind of saying, okay, like, look, we have hybrid search now. You can get better outcomes as kind of a starting point for doing more stuff around GenAI than anyway. But like where are we on that journey of the whole client base understanding what you can offer now and kind of working on that one? Because it does feel like it's still very early.

Question: Raimo Lenschow - Barclays Bank - Analyst : Yes, perfect. And then one follow-up for me was you mentioned, Ash, you talked earlier about the SIEM opportunity. Obviously, there has been a lot of disruption in the market with some of the takeout, et cetera. What are you seeing there in terms of customer engagement with you guys around SIEM? And Janesh, it was an honor working with you.

Question: Ittai Kidron - Oppenheimer & Co - Analyst : Janesh, my thanks to you as well, and good luck on the next move. Ash, I wanted to ask again about the search AI. I'm sorry, getting back to this. 1,550 customers, that's quite impressive and quite nice. But can you tell us how many of these customers were historical search customers, I mean, you just added the AI capabilities or were net new to the company? And perhaps what's the penetration right now of AI within your search base?

Question: Ittai Kidron - Oppenheimer & Co - Analyst : Very good. And then maybe on the competitive front, can you elaborate a little bit more? What do you view is your toughest competition here on the GenAI side and on the SIEM? Like who are the one or two vendors that you see most frequently? And when you talk about the displacements, I think you talked about it more in the context of SIEM on the call. Where are the greatest displacement opportunities that you see right now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 21, 2024 / 10:00PM, ESTC.N - Q2 2025 Elastic NV Earnings Call

Question: Howard Ma - Guggenheim Securities - Analyst : My question is for Janesh and or Eric. So it sounds like you did not make up for the Q1 shortfall in customer commits in Q2 despite the bounce back. But when you factor in the acceleration in consumption trends, it sounds like maybe you were back on track with your revenue targets before the cut last quarter, and that you're just being a bit conservative with your back half assumptions. Is that true? Or maybe just asked another way, had you known you would achieve the Q2 performance that you did, both commits and consumption, would you still have lowered your full year guide last quarter?

Question: Howard Ma - Guggenheim Securities - Analyst : Okay. Thanks for clarifying that, Eric. I just had a follow-up for Ash. When you look over the last 12 months, how would you describe the pace of adoption of vector database, ELSER, hybrid search for GenAI use cases? And compare that to how you expect the pace of adoption will play out over the next 12 months? And on a related note, could you, in the next few quarters, next quarter or the quarter after, could we start seeing a disclosure of AI contribution to total revenue, maybe when it hits 2%, 3%, 5%? Like is that perhaps in the works?

Question: Howard Ma - Guggenheim Securities - Analyst : Okay, great. And great to see the bounce back.

Question: Austin Dietz - UBS Investment Bank - Analyst : Maybe just another question on RPO. Janesh, it sounded like you felt good on the trajectory of the business in Q3 and Q4. Could you maybe talk about the second half what you're seeing? And is it possible, especially as we have more time for that sales execution motion to continue to improve, could RPO see an uptick kind of on a sequential dollar growth basis in the second half, especially relative to last year?

Question: Austin Dietz - UBS Investment Bank - Analyst : Okay, great. And then just last, Ash. As a part of those go-to-market changes, it seemed like there was more of a focus on greenfield opportunities, new logos. Can you update us on how that's progressing?

Question: Kas Rangan - Goldman Sachs - Analyst : Janesh, good luck with the next gig here. One for you, Ash, maybe two things. One is when you talk about the GenAI progress, what are the metrics that you are tracking? So granted that you do not have a revenue to disclose to us, you talk about use cases, but how would you define GenAI success in a way that we can say, okay, that makes sense relative to say a Microsoft or a ServiceNow that seem to be talking about GenAI bookings or AI bookings? And also another question for you. When you look at the go-to-market motion, you sell a platform so you do not really know the use cases instance-by-instance. How does that percolate into having the right go-to-market strategy granted that GenAI is emerging as a use case? Do we not know what the sales force is hunting for and they come back and tell you, and then sometime later, when the implementation happens you find out that it's implemented for search versus observability versus SIEM versus AI, whatnot? So trying to understand how -- if we do not know

Question: Kas Rangan - Goldman Sachs - Analyst : Got it. And we can save this for another discussion maybe at your Analyst Day or whatever, but I'm curious in the long term, how does the go-to-market strategy evolve and the product marketing and the product management evolve? So you can actually go to market with a bundle -- use case bundle. You don't have to address this now, but I'm just throwing it out there. But the real question I wanted to follow up with was, at what point do you feel like you need to add or accelerate the sales capacity growth rate? Because clearly, if things work out the way you would like to, the growth of the company can be better. For that to happen, you need to also have another round of investing in sales capacity, go-to-market. I'm just curious how you look at the trade-off of faster revenue growth rate versus enjoying the margin structure that you do currently?