e0822b43ff8179f1181ec8196aa698c6e27febe27e74deb756dd366722a928b3

Total Revenue (USD, thousands)

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a9b9bd49ba6b5b39f44a5f97ba9df22ab72f468c65686195afa5b22994adfc5c

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248f3aa8b44d2f995af7e9c70f320d3dc4840517c63a2f6d4b005b8d832772d2

Elastic Cloud

Other Subscription

Total Subscription

Services

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b2d0901471c0d0359bdccfdd93828bc14d75db689a17427023e1a7d41d750927

United States

Rest of World

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1. Given that customer commitments related to generative AI almost doubled quarter-over-quarter and you have over 1,550 customers using Elastic for GenAI use cases  **[ESTC_3409818_1]** , but you don't have a separate SKU or a way to parse out GenAI revenue  **[ESTC_3409818_29]** **[ESTC_3409818_26]** , how can investors track your progress in this critical area? Will you consider providing more detailed metrics or disclosures on the financial contribution of GenAI to your business?

2. Despite improved sales execution in Q2 with pipeline creation and progression returning to normal levels  **[ESTC_3409818_12]** **[ESTC_3409818_17]** , your guidance implies an exit growth rate of 11% in fiscal Q4  **[ESTC_3409818_17]** , suggesting conservatism or lingering impacts from earlier sales challenges. Can you elaborate on the factors influencing your guidance and the confidence you have in sustaining the improved sales momentum?

3. As competition intensifies in both the GenAI space, with pure-play vector databases and other data platforms developing vector functionality  **[ESTC_3409818_18]** , and in SIEM, with incumbent vendors and market disruptions  **[ESTC_3409818_18]** **[ESTC_3409818_22]** , how do you plan to differentiate Elastic and maintain your competitive edge? What are the key risks you see in these markets?

4. You observed stronger-than-expected consumption among larger customers in Q2  **[ESTC_3409818_16]** **[ESTC_3409818_11]** , but you are not factoring this into future guidance due to prudence and historical fluctuations  **[ESTC_3409818_16]** **[ESTC_3409818_11]** . Is there a risk that you are being overly conservative and potentially underestimating your growth potential, especially if these consumption trends continue?

5. With plans to increase investments in the second half of the year, particularly in GenAI  **[ESTC_3409818_10]** **[ESTC_3409818_30]** , how do you balance the need for increased investment to capture growth opportunities with your commitment to improving operating margins? Do you believe your current level of investment is sufficient to capitalize on the significant market opportunity in GenAI without sacrificing future growth?

7a53c88618aa16d07537a9fbcf280f131a062f21154dd17758fe6b91af500e12

Elastic N.V. (ESTC) is a company that specializes in providing a platform for search-powered solutions. The company primarily generates revenue through the sale of subscriptions to its platform, which includes various paid subscription tiers offering different levels of access to proprietary features and support. Elastic also offers consulting and training services to complement its subscription offerings.

1. **Subscription** - Offers access to Elastic's platform through various paid tiers, providing different levels of proprietary features and support. Subscriptions are available on both term-based and consumption-based models, with Elastic Cloud being a significant component.
   - **Elastic Cloud** - Provides cloud-based access to Elastic's platform, allowing customers to utilize its services on a consumption basis.

2. **Services** - Provides consulting and training services to help customers effectively implement and utilize Elastic's platform.

9b248f7dd3398f36a7e37aa22c7cf27f522e626a500ce8c30c13957a52480209

| Name            | Position                        | Start Date         | Short Bio                                                                                                                                                                                                                                                                                                                                                      |
|-----------------|---------------------------------|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Ashutosh Kulkarni | Chief Executive Officer         | January 2022       | Ashutosh Kulkarni has served as the **Chief Executive Officer** of Elastic N.V. since **January 2022**. He was elected to the board of directors in **March 2022**. Prior to becoming CEO, Mr. Kulkarni was the Chief Product Officer (CPO) from **January 2021 to January 2022**. He held significant roles at McAfee Corp. and Akamai Technologies  **[0001707753-24-000029_estc-20240827.htm:9]** **[0001707753-24-000021_estc-20240815.htm:9]** **[0001707753-23-000038_estc-20230828.htm:12]** **[0001707753-23-000030_estc-20230818.htm:12]** . |
| Janesh Moorjani | Chief Financial Officer (until December 13, 2024) | August 2017        | Janesh Moorjani served as the **Chief Financial Officer (CFO)** of Elastic N.V. since **August 2017** and as the **Chief Operating Officer (COO)** since **May 2022**. He will resign from his positions at Elastic on **December 13, 2024**  **[0001707753-24-000029_estc-20240827.htm:45]** **[0001707753-24-000044_estc-20241118.htm:2]** .                                                                                                          |
| Eric Prengel    | Interim Chief Financial Officer  | December 14, 2024  | Eric Prengel was appointed as the **interim Chief Financial Officer** of Elastic, effective **December 14, 2024**. He served as the Group Vice President of Finance at Elastic since January 2023 and held various finance leadership roles at J.P. Morgan  **[0001707753-24-000044_estc-20241118.htm:2]** **[0001707753-24-000044_a25q2erex991.htm:1]** .                                                                                           |
| Shay Banon      | Chief Technology Officer         | January 2022       | Shay Banon is the **Chief Technology Officer (CTO)** at Elastic. He co-founded the company and has been a member of the board of directors since July 2012. Banon served as the CEO from May 2017 to January 2022 and is the creator of the Elasticsearch product  **[0001707753-23-000038_estc-20230828.htm:13]** **[0001707753-24-000029_estc-20240827.htm:7]** **[0001707753-24-000029_estc-20240827.htm:45]** .                                                                                  |
| Ken Exner       | Chief Product Officer            | August 2022        | Ken Exner is the **Chief Product Officer (CPO)** at Elastic. He has been with the company since **August 2022**. Before joining Elastic, he was the head of Developer Tools at Amazon and held various senior roles at Amazon Web Services  **[0001707753-24-000029_estc-20240827.htm:45]** **[0001707753-24-000021_estc-20240815.htm:45]** **[0001707753-23-000038_estc-20230828.htm:50]** **[0001707753-23-000030_estc-20230818.htm:50]** .                                                                                                     |
| Mark Dodds      | Chief Revenue Officer            | December 2023      | Mark Dodds serves as the **Chief Revenue Officer (CRO)** at Elastic. He joined the company in December 2023, bringing extensive global sales leadership experience from his 23-year tenure at Cisco  **[0001707753-23-000062_exh991-pressreleasedecembe.htm:0]** **[0001707753-24-000029_estc-20240827.htm:45]** **[0001707753-23-000062_estc-20231207.htm:1]** .                                                                                                                                                |
| Carolyn Herzog  | Chief Legal Officer              | May 2022           | Carolyn Herzog has served as the **Chief Legal Officer** of Elastic N.V. since **May 2022**. Before joining Elastic, she was the Executive Vice President and General Counsel at Arm and held various roles at Symantec  **[0001707753-24-000029_estc-20240827.htm:45]** **[0001707753-24-000021_estc-20240815.htm:45]** **[0001707753-23-000038_estc-20230828.htm:50]** **[0001707753-23-000030_estc-20230818.htm:50]** .                                                                                                                         |

702fd7a7a9c2cca7a24844b65c9f4270dfdfc5d3cd5799ddc0ed11c4e938d8a9

- **Continued softness in the SMB segment remains a concern, with no significant improvement observed quarter-over-quarter.**  **[ESTC_3391186_17]**
- **The company is not modeling significant revenue contribution from Generative AI (GenAI) in fiscal '25, indicating longer-term realization of this growth driver.**  **[ESTC_3391186_5]**
- **Guidance for fiscal '25 suggests slowing revenue growth, with total revenue expected to grow by 16% year-over-year, down from prior periods.**  **[ESTC_3391186_5]** ,  **[ESTC_3391186_9]**

707a1143046ea64ad002676eba5d94000ffee063c0bb2633c02230f671ab3596

- **Elastic expects a decline in non-GAAP operating margin in Q4 due to $12 million in higher seasonal expenses and a $6-7 million revenue headwind from two fewer days in the quarter.**  **[ESTC_3376085_17]**
- **Persistent softness in the SMB segment, which is predominantly self-serve, may impact overall growth as this segment remains soft and has been for some time.**  **[ESTC_3376085_20]** **[ESTC_3376085_7]**
- **Elastic plans to accelerate investments in fiscal '25, which will negatively impact non-GAAP operating margins, expecting only modest operating margin expansion next year.**  **[ESTC_3376085_14]**

7dc61947f6ca66e7ad68de0a518f12450f3b8f5f2a383a1fc17a2f1de19715af

- **Elastic's search business accelerated this quarter**, driven by strong demand for **Generative AI applications**, especially in **semantic search and Retrieval-Augmented Generation (RAG) use cases**.  **[ESTC_3400219_18]**
- The company has implemented **corrective actions** to address sales execution challenges from **sales segmentation changes**, and is already seeing **positive signs**, expecting to return to strong sales execution in the **next couple of quarters**.  **[ESTC_3400219_8]** **[ESTC_3400219_14]**
- **Investments are being prioritized** towards high-growth areas like **Generative AI**, while balancing revenue growth and profitability, with expectations to **expand operating margins in future years** due to the operating leverage inherent in the business model.  **[ESTC_3400219_27]** **[ESTC_3400219_19]**

a423b6eb59f3742e1ca5fded6d3a136dfaebd50cdb01ded156e4076e8b45960c

- **Sales execution issues due to underestimated impact of sales segmentation changes led to lower customer commitments and deals not closing as expected, affecting revenue guidance.**  **[ESTC_3400219_8]** **[ESTC_3400219_27]** **[ESTC_3400219_11]** **[ESTC_3400219_15]** **[ESTC_3400219_14]** **[ESTC_3400219_25]**
- **The company expects these issues to take a couple of quarters to fix, delaying a return to stronger execution and potentially impacting financial performance in the near term.**  **[ESTC_3400219_27]** **[ESTC_3400219_15]** **[ESTC_3400219_19]** **[ESTC_3400219_25]**
- **The sales execution issues affected all areas of the business, including security and observability, not just one segment, indicating widespread challenges.**  **[ESTC_3400219_22]** **[ESTC_3400219_25]**

b805cb8e13504b6cdac05974c6575dbfad981553d9564b3888c7139c3c0ea5ad

- **Elastic reported strong and steady consumption trends**, with customers continuing to increase their usage towards commitments, contributing to the **32% year-over-year growth in Elastic Cloud revenue**.  **[ESTC_3391186_6]**
- **Significant customer adoption of Elastic's Generative AI (GenAI) capabilities**, with over **1,000 paying customers using their vector database and RAG capabilities**, including over **145 customers with annual contract values over $100,000**, leading to long-term growth potential.  **[ESTC_3391186_20]**
- **Successful displacement of incumbents due to innovations in observability and security**, as customers seek to reduce costs and increase innovation with AI, leading to consolidation onto Elastic's platform and new growth opportunities.  **[ESTC_3391186_21]**

843a2e1914296ef08642f1d2483fd884b6d265cc5c0149cfafc1bc8471f4b523

1. **Strong Consumption Trends**  
   **Q:** Are the strong consumption trends among large customers sustainable?  
   **A:** Management noted that overall consumption was strong in Q2, especially among **larger customers**, who accelerated their consumption. This is reflective of their efforts over the past several quarters. They view the strength as broad-based and **not onetime**, but are being prudent in their guidance as consumption rates can fluctuate.  **[ESTC_3409818_11]** **[ESTC_3409818_16]** 

2. **Sales Execution Improvement**  
   **Q:** What drove the improvement in sales execution this quarter?  
   **A:** The company made strategic changes at the beginning of the year to focus more on the **enterprise segment** and **high-propensity mid-market segments**. The benefits of these changes are now materializing, with **pipeline creation and progression returning to normal levels** and strong win rates boosting confidence in future performance.  **[ESTC_3409818_12]** **[ESTC_3409818_17]** 

3. **Generative AI Growth and Large Deals**  
   **Q:** How is Elastic's generative AI business progressing, and are large deals materializing?  
   **A:** Generative AI is the **fastest-growing part of the business**, with commitments nearly **doubling quarter-over-quarter**. The company secured **three generative AI deals exceeding $1 million** in annual contract value. While they don't have a separate AI SKU, they are seeing significant traction and expect to benefit from large deals as generative AI experiences come to fruition.  **[ESTC_3409818_15]** **[ESTC_3409818_18]** **[ESTC_3409818_23]** 

4. **Revenue Mix and Search Acceleration**  
   **Q:** Has the revenue mix between search and observability changed?  
   **A:** **Search has been accelerating**, benefiting from trends in generative AI, although all parts of the business grew this quarter. While the overall business mix changes gradually, search is currently **gaining more share**.  **[ESTC_3409818_20]** **[ESTC_3409818_21]** 

5. **SIEM Opportunity and AI in Security**  
   **Q:** What opportunities does Elastic see in the SIEM market?  
   **A:** Elastic is experiencing momentum in SIEM, with **AI becoming essential** in security analytics for improving detection and remediation. They are winning both **greenfield and displacement deals**, leveraging their strengths in AI and vector databases to differentiate in the market.  **[ESTC_3409818_22]** 

6. **RPO Trends and Sales Execution**  
   **Q:** How does management reconcile flat RPO with satisfaction in sales performance?  
   **A:** Although RPO was roughly **flat year-over-year** due to the Q1 shortfall impacting cumulative RPO, sequentially it **increased slightly**, which is better than the usual seasonal decline. Management is pleased with sales progress and expects continued execution to reflect in future metrics, including RPO and revenue.  **[ESTC_3409818_19]** **[ESTC_3409818_27]** 

7. **Investment in Sales Capacity**  
   **Q:** Will Elastic increase sales capacity to drive future growth?  
   **A:** Given the revenue outperformance in Q2, the company is **increasing investments** in the second half, including in **sales capacity**. They aim to balance adding margin and investing for growth, ensuring they have the **right amount of productive selling capacity** entering the next fiscal year.  **[ESTC_3409818_30]** 

8. **Competition in SIEM and GenAI**  
   **Q:** Who are Elastic's main competitors in SIEM and generative AI?  
   **A:** In SIEM, Elastic faces incumbent vendors like **Splunk, QRadar, and ArcSight**. In generative AI, they position themselves as the **platform for retrieval augmented generation**, aiming to be the **vector database of choice**. While they compete with other vector database providers, their strength lies in handling **unstructured data**.  **[ESTC_3409818_24]** 

9. **Greenfield Opportunities**  
   **Q:** How is Elastic progressing with greenfield opportunities?  
   **A:** The company has assigned sellers to distinct **greenfield territories**. While it's early, they are seeing **pipeline creation and progression returning to historical levels**, and they continue to build momentum in these areas.  **[ESTC_3409818_28]** 

10. **Binary Quantization Differentiation**  
    **Q:** How significant is Elastic's innovation in binary quantization for GenAI use cases?  
    **A:** Management believes their advancement in **better binary quantization** is a **game changer**, offering high efficiency with minimal impact on accuracy. This innovation enhances performance and scalability in generative AI applications, and they plan to **drive this advantage hard** in the market.  **[ESTC_3409818_13]** 

3bdc1c9e27c68901637739fbc89d5c6cb948c11f648aeee70bc9d687f931dccc

- **Strong Platform Consolidation Driving Growth**: Elastic is experiencing significant growth through platform consolidation, with customers displacing incumbent solutions and consolidating onto Elastic's platform for **observability and security**. This consolidation is the **biggest contributor** to their growth in **Q3**.  **[ESTC_3376085_17]** **[ESTC_3376085_11]**
- **Innovation in Generative AI and AI Assistants**: Elastic's innovations in **Generative AI** and **AI assistants** for observability and security are resonating with customers. Their capabilities in building enterprise-class Generative AI applications make them a preferred platform, enabling them to **win and displace incumbents**.  **[ESTC_3376085_11]** **[ESTC_3376085_2]**
- **Robust Cloud Revenue Growth**: Elastic reported a **29% year-over-year growth** in cloud revenue, with strong performance in both **commercial and enterprise segments**. Their sales motions are working well in securing commitments and driving consumption, leading to a **strong cloud performance**.  **[ESTC_3376085_11]** **[ESTC_3376085_7]**

47ef17c589ce587fcaaf9beb778de38011736dde7ba752056fc56514478194b5

- **Flat RPO (Remaining Performance Obligations) sequentially from Q1 to Q2**, while competitors are growing RPO at twice the speed, indicating potential lag in bookings and future revenue growth.  **[ESTC_3409818_19]**
- **Muted RPO sequential growth**, even after deals pushed out from Q1 closed in Q2, suggests that **booking cadence is improving but not yet back to historical norms**.  **[ESTC_3409818_14]**
- Management indicates a need to balance between accelerating growth and maintaining profitability, which may imply **limited growth without increased investment in sales capacity**.  **[ESTC_3409818_30]**

efd818259d980e3b63e8183f6a024ffd8d01886a17ed4eac4f0728f2df03e39d

Elastic NV (ESTC)

Financials