Elastic N.V.

Good day and welcome to the Elastic first quarter fiscal 2025 conference call. All participants will be in the listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Anthony Loscri, VP of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic's first quarter fiscal 2025 financial results. On the call, we have Ashkel Carney, Chief Executive Officer, and Janesh Morjani, Chief Financial Officer and Chief Operating Officer. Following their prepared remarks, we will take questions. Our press release was issued today after the close of market and is posted on our website. Slides, which are supplemental to the call, can also be found on the Elastic Investor Relations website at ir.elastic.co. Our discussion will include forward-looking statements, which may include predictions, estimates, our expectations regarding the demand for our products and solutions, and our future revenue and other information. These forward-looking statements are based on factors currently known to us, speak only as of the date of this call and are subject to risks and uncertainties that could cause actual results to differ materially. We disclaim any obligation to update or revise these forward-looking statements unless required by law. Please refer to the risks and uncertainties included in the press release that we issued earlier today, included in the slides posted on the Investor Relations website, and those more fully described in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures. Disclosures regarding non-GAAP measures, including reconciliations with the most comparable GAAP measures, can be found in the press release and slides. The webcast replay of this call will be available on our company website under the Investor Relations link. Our second quarter fiscal 2025 quiet period begins at the close of business on Wednesday, October 17, 2024. Over the coming weeks, we will be participating in the Citi Global TMT Conference, Goldman Sachs Communicopia and Technology Conference, and the Piper Sandler Growth Frontiers Conference. With that, I'll turn it over to Ash.

Thank you, Anthony. And thank you all for joining us today. Total revenue in Q1 grew 18% year over year. Cloud revenue grew 30% year over year. And we delivered non-GAAP operating margin of 10.7%. We once again outperformed against the high end of our revenue and profitability guidance for the quarter. We continue to focus on our land expand and consolidate strategy, growing the total number of customers spending over 100K with us to more than 1,370. We also continued to drive strong momentum around generative AI opportunities, and this helped us accelerate growth in our search business. Furthermore, our platform consolidation message continues to resonate with customers. Despite this strength, we view this as a mixed quarter for us because the overall volume of customer commitments we closed in Q1 fell short of our expectations. In terms of the issues that affected the total customer commitments closed in Q1, we were impacted by sales segmentation changes we made at the beginning of Q1 to increase focus on our strategic, enterprise, and high potential mid-market customers. To be more specific, at the start of the fiscal year, we expanded our strategic segment, created more focus on selling into our largest accounts by reducing the number of accounts per sales rep and created distinct greenfield territories to focus on landing new customers, both in the enterprise and commercial segments. All these changes will help us grow our customer relationships and, in time, increase our wallet share with customers through our platform consolidation motion. However, we underestimated the impact of the account transitions that occurred with these changes. This was especially true in the Americas where we had the largest territory changes, and we just didn't progress deals fast enough to bring them over the finish line. Separately, and to a lesser degree, tighter customer budget constraints led to delays in closing deals in EMEA. None of these deals were lost, and we expect to close these in due course. Working with Mark Dodds and his sales leadership team, I have significantly heightened the monitoring of deal progress in the areas where we had the biggest segmentation changes. With this increased rigor, the deeper focus on our largest accounts, and quite simply, as reps have had more time to cover their new accounts, we are already seeing encouraging signs of deals progressing through the sales funnel. Our enterprise engagements, particularly with our largest strategic accounts, can drive significant large deals for us over the next several quarters and beyond. These customers also have the largest budgets. Looking ahead, we remain extremely confident in both the market opportunity and our ability to successfully capture that opportunity. Our innovations are expanding our competitive differentiation. We continue to strengthen our position as the platform of choice for building real-time Gen AI applications. Our value and price advantage will continue to be a strength for us as customers consolidate onto Elastic for multiple use cases. Turning to generative AI. The level of customer enthusiasm and demand for generative AI is intensifying as companies continue to progress from ideation to testing and adoption. Gen AI's immense potential to drive business transformation reinforces our conviction in our strategy and in our position as a long-term beneficiary of this enormous technology shift. I am very pleased that we ended Q1 with over 1,300 customers using Elastic Cloud for generative AI use cases and with approximately 200 customers amongst our cohort of greater than 100K customers using us for GenAI. Also, as I mentioned earlier, we saw an overall acceleration in our search business as more customers chose Elastic to build out their AI-powered, generative AI use cases. All of this bodes incredibly well for our future as the Search AI company with the leading platform for building real-time GenAI applications. As an example, in Q1, a leading sales enablement software company signed an expanded deal to use Elastic to incorporate GenAI across its platform. The company's co-pilot now leverages ELSIR, Elastic's proprietary machine learning model for semantic search, to enable each of their customers to create personalized and tailored content through more precise and faster retrieval augmented generation capabilities. This has improved the satisfaction of their customers and has led to a more than two-fold increase in their Elastic consumption over the last six months. the company chose the Elastic Search AI platform for our hybrid search capabilities and seamless integration that doesn't require extensive model training or retraining. Another win in Q1 was with a global leader in the transportation industry that signed an expansion deal with Elastic through the Google Cloud Marketplace to upgrade its security architecture and incorporate Gen AI across all cybersecurity operations. the company will deploy our AI-driven security analytics capabilities, such as the Elastic AI Assistant, Attack Discovery, and ESQL, aiming to increase their event processing capacity by 20%. These innovative capabilities enable the organization to automate detection, prioritize actionable intelligence, and efficiently manage security threats, significantly reducing manual effort to enhance operational efficiency. A large American law firm has signed a new deal with Elastic, displacing an incumbent solution for vector search and retrieval augmented generation. The firm will use Elastic to enhance case preparation for their paralegals and lawyers with a new internal search application. The application will find similar cases for benchmarking, applicable case laws, and correct misclassified cases. which aims to ultimately boost revenue per case and improve win rates for their clients. Elastic was chosen to displace the incumbent solution based on performance and ability to scale, as the organization currently has nearly 40 million documents and is adding approximately 2 million every month. The value Elastic brings comes through in every customer conversation I have. which is why we also continue to win in platform consolidation. We continue to add capabilities to make it easier for customers to migrate from incumbent solutions and adopt the Elasticsearch AI platform. In the last several quarters, we have led with ESQL, our powerful piped query language, and with our AI assistance for security and observability. In Q1, at the Black Hat Security Conference, we went a step further by launching the Elastic Express Migration, a new incentive program which packages up all the migration services a company needs and helps mitigate dual vendor costs to move away from legacy SIM and log analytics vendors to adopt the Elastic Search AI platform quickly and efficiently. We are pleased with our continued focus and efforts to displace incumbent solutions. For example, We closed a seven-figure deal in the quarter with a leader in data security and compliance via the AWS marketplace, displacing a competitive solution. The company uses the Elasticsearch AI platform to search, analyze, and visualize massive volumes of data across cloud environments, enabling their customers to detect, mask, and manage sensitive data to ensure compliance and mitigate risk. the speed and efficiency of the organization's data operations has already improved, outperforming their previous solution by up to 120 times. Elastic was chosen based on a rapid search capabilities in detecting security breaches, meeting the complex needs of the demanding security environments in the world's largest and most influential companies. Also in the first quarter, a leading data analysis and business intelligence platform signed the new deal to replace an incumbent solution with Elasticsearch AI platform. The company's open source intelligent solutions ingest, enrich, and analyze data from disparate sources around the globe, empowering law enforcement, government agencies, and businesses to save lives and protect what matters most. By choosing Elastic to help streamline and consolidate disparate data sources and deliver more relevant search results, they can reduce costs, increase developer productivity, and improve search outcomes. Now, turning to innovations in Q1. Our team continued to deliver capabilities to further expand our competitive advantage in the areas of search, gen AI, observability, and security. In search, we continued to extend our leadership position as a vector database and in the retrieval augmented generation or RAG use case. In the first quarter, we further optimized scalar quantization, resulting in faster query speeds and dramatic reduction in memory requirements. And we have added support for binary vectors. We also introduced the semantic underscore text field type, which automates the process of chunking large documents and creating text embeddings for each chunk, resulting in a significantly simpler experience for Gen AI developers. Finally, we expanded our semantic re-ranking capabilities, which improves our natural language search capabilities for all users with a wider variety of AI model providers. We also introduced Playground, to accelerate RAG application development with Elasticsearch, all through an intuitive, low-code, UI-based workflow. With Playground, developers select any of their data in Elasticsearch to experiment with and refine conversational queries with a generative model of choice. After experimentation, Playground can export production-ready code to simplify RAG implementations grounded by proprietary data. On a related note, Elastic has always embraced the power of open source and is demonstrating this with our announcement today that Elasticsearch will be adding the AGPL as an option to license the free part of our source code that is available under the SSPL license today. AGPL is an OSI approved open source license and with this, Elasticsearch will be officially considered open source again. This will drive even greater engagement and adoption for Elasticsearch in areas including Vector Search within our large community, further increasing our popularity as the runtime platform for RAG and building GenAI applications. This exciting change will be incredible for our users and for our business over the long term. In security, AI is transforming the SIEM landscape. with the traditional SIEM fast evolving to an AI-driven security analytics platform for the modern SOC. Building on attack discovery to automate threat investigations and triage, which we had discussed on our prior call, we continued our leadership in this area with our launch in Q1 of Search AI-powered Automatic Import. Automatic Import is a powerful new capability to automate SIEM data onboarding by using AI to enforce schemas and automatically generate the rules to ingest data accurately. It complements our AI assistant that customers can continue to use to convert their existing same rules to Elastic. And all of this taken together greatly reduces the risk and effort to consolidate onto the Elastic platform. In the area of observability, we continue to deliver enhancements that improve the overall AI Assistant experience, and increased choice for our customers, adding support for Google Vertex with Gemini Pro Model 1.5 connector and custom index support for AI Assistant knowledge base, giving customers more flexibility in how they leverage the AI Assistant. Finally, we were pleased to be ranked as a leader in the 2024 Gartner Magic Quadrant for observability platforms. are an essential part of our go-to-market strategy, and we are delighted to be recognized as the 2024 Microsoft US Partner of the Year, which not only underscores the strength of our partnership, but also reflects our shared focus to help customers accelerate their AI journey without sacrificing the privacy and security of their proprietary data. In closing, we are very focused on improving our sales execution in the coming months. The opportunity in front of us, our technology platform, our community, our large customer base, and our team give us an incredibly strong foundation to build upon. We remain committed to building a multi-billion dollar business over time with a focus on growth and profitability. With that, I'll turn it over to Janesh to go through our financial results in more detail.