Elastic N.V.

Good day and welcome to the last week's second quarter fiscal 2025 earnings results conference call. All participants will be in 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 your telephone keypad. 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 Lifcray, Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic's second quarter fiscal 2025 financial results. On the call, we have Ashkel Carney, Chief Executive Officer, Janesh Morjani, Chief Financial Officer and Chief Operating Officer, and Eric Pringle, our incoming interim CFO. Following their prepared remarks, we will take questions. Our press release was issued today after the close of market is posted on our website. Slides, which are supplemental to this 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 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 third quarter fiscal 2025 quiet period begins at the close of business on Friday, January 17th, 2025. We will be participating in Scotiabank's Global Technology Conference on December 10th and the Needham Growth Conference on January 16th. With that, I'll turn it over to Ash.

Thank you, Anthony, and thank you, everyone, for joining us on today's call. Elastic delivered a strong second quarter supported by solid sales execution and customer commitments. In Q2, we meaningfully exceeded guidance across all revenue and profitability metrics. Revenue grew by 18% year-over-year. Cloud revenue grew by 25% year-over-year. And we delivered a non-gap operating margin of 18%. We also increased the number of customers spending over 100K with us to 1,420. At the start of this fiscal year, we made sales segmentation changes to increase the focus on our key enterprise and high potential mid-market customers. After some unexpected disruption in sales performance in Q1, we are now starting to see the benefits of the changes we made take hold. our performance in Q2 reaffirms our confidence in our strategy and shows that we are well on our way to returning to the strong pace of sales execution that we have demonstrated in the past. In Q2, we saw strong customer commitments with key wins across all of our solution areas, especially in search powered by generative AI. We also saw continued consolidation onto the Elastic platform for security and observability with many customers displacing incumbent legacy products and migrating onto our Search AI platform. Turning to generative AI, our momentum in this area continues to build. In Q2, we saw strong demand for our vector database as customers increasingly adopted Elastic for building semantic search and retrieval augmented generation or RAG applications. Our clear product differentiation and our relentless space of innovation is helping us become a natural choice for customers building GenAI applications. We are seeing adoption and winning deals across many different industries and for use cases that seek to automate a wide variety of business processes. In Q2, we saw continued acceleration in our search business with significant tailwinds from GenAI. In Q2, new customer commitments with GenAI almost doubled in dollar volume as compared to what we saw in Q1, with three of the deals we signed being greater than a million dollars in annual contract value. We now have over 1,550 customers on Elastic Cloud using us for GenAI use cases, with over 240 of these amongst our cohort of customers spending $100K or more with us annually. For example, this quarter, a US-based global leader in the automotive industry expanded its relationship with Elastic in a multi-year, seven-figure deal by selecting our Elasticsearch AI platform. The company has standardized on Elastic's vector database as the backbone for their retrieval augmented generation and chatbot applications. Elastic's vector database powers over 30 chatbot clusters used for both internal employee support and customer-facing interactions to enhance efficiency by providing real-time relevant answers and driving improved productivity for the organization's workforce. Beyond chatbots, the company is leveraging Elastic's hybrid search capabilities, combining keyword and semantic search for broader applications. We also signed an expansion deal with a leading sporting goods retailer in North America to support their omnichannel experience. Using the Elasticsearch AI platform, the retailer will improve search relevance by adopting semantic search and using advanced AI relevance capabilities like learning to rank to improve margins and profitability in-store and online. The company chose Elastic for a deep expertise in retail search transformation and our integrated machine learning and search AI capabilities, all within a single platform. In addition to GenAI, the other secular tailwind that we have been benefiting from is customer consolidation onto our platform for multiple use cases. Our ability to help customers reduce complexity and drive efficiency at a lower total cost of ownership by consolidating onto the Elastic platform for multiple use cases is helping us secure strong customer commitments and become an increasingly strategic part of their IT infrastructure. And we continue to invest in capabilities and incentives that make it possible for customers to migrate easily from incumbent solutions to Elastic. Last quarter, I talked about the Elastic Express migration program and our Search AI-powered automatic import functionality. And I'm pleased to say that we are seeing significant momentum from customers who are leveraging these to migrate off of legacy offerings onto our platform. These incentives and offerings were critical in helping us win over 40 competitive deals in Q2, where we either displaced incumbent solutions or onboarded new workloads through platform consolidation. This quarter, an online marketplace for short and long-term homestays selected Elastic Security to replace its existing SIM solution, marking a strategic shift towards a more scalable and AI-driven security approach. This seven-figure expansion deal involves replacing a complex and inefficient solution, unable to keep up as the company's threat landscape and data footprint grows. The Elasticsearch AI platform, including ESQL and our AI assistant, will help the company streamline its security operations and ensure faster, more accurate threat detection. Cost efficiency at scale, seamless integration, and advanced AI features were significant factors in their choice of Elastic, positioning us as a key partner in their next-generation security infrastructure. In another seven-figure deal, we signed a new agreement with an insurance provider displacing two competitive solutions for their cybersecurity operations. The company chose Elastic Security, leveraging our AI assistant and attack discovery to strengthen their threat detection, incident response, and vulnerability management as part of their broader digital transformation efforts. Now turning to product innovations in Q2. We introduced a steady addition of new AI capabilities, including a number of features that significantly improve our performance as a vector database. We continue to innovate to maintain our position as the most downloaded vector database on the market. Elasticsearch now supports bit vectors, SIMD acceleration, and INT4 quantization to improve performance. And now, Elastic is the first vector database to offer better binary quantization, now in tech preview. BBQ, as we refer to it, offers a 32x lower memory footprint compared to storing and searching full precision vectors. It also surpasses traditional methods like product quantization, delivering faster vector search at lower costs without compromising accuracy. Initial benchmarks are showing 30x less quantization time. This is a game changer for navigating the usual vector search trade-offs between costs and accuracy and is only available from Elastic. We also announced the general availability of AutoOps, the outcome of our acquisition of Opster, which significantly simplifies Elasticsearch cluster management with performance recommendations, resource utilization, and cost insights. as well as real-time issue detection and resolution paths. By analyzing hundreds of Elasticsearch metrics, configuration, and usage patterns, AutoOps recommends operational and monitoring insights that deliver real savings in administration time and hardware costs. In security, AI continues to transform the SIEM landscape, with the SIEM fast evolving to an AI-driven security analytics solution for the modern SOC. We expect this new generation of solutions to not only subsume traditional SIM functionality, but also consolidate extended protections for various parts of IT infrastructure, which today require separate tools. Cloud Detection and Response, or CDR, is one such area of extended protections that we recently integrated into our AI-driven security analytics solution. providing threat detection and response and contextual investigation to protect cloud environments, all within a unified set of workflows already familiar to our SIEM users. As part of this capability, our users can benefit from detection rules that combine cloud telemetry with other relevant logs collected by the SIEM and from context gained from correlating other events and entities to perform streamlined yet informed investigations. Since this capability is fully integrated into our SIM, CDR users can now benefit from all of Elastic's unique differentiators in the areas of query speed, data management, and relevance-focused AI. In the area of observability, Elastic is now 100% OpenTelemetry or OTEL native. As you know, OTEL enables observability users to move from proprietary data ingest mechanisms to an open standard format. As of Q2, all OTEL-compliant data is now stored and elastic without data translation, which removes the need for SRE teams to worry about data formats. Our entire observability suite now works out of the box for OTEL-compliant ingested data. In addition, we introduced our OTEL-based Kubernetes integration and dashboards, providing users with instant visibility into clusters and application metrics, logs and traces, all without the need for any manual configuration. Elsewhere, we expanded our LLM observability capabilities to include Amazon Bedrock. This adds to our previously announced support for Azure OpenAI. With this, we provide comprehensive visibility into the performance and usage of foundational models from Bedrock, as well as dashboards and detailed insights into model performance usage patterns and costs. On the go-to-market front, we kicked off our Elasticon events in Q2 and to date have held events in San Francisco, Bangalore, Munich, and New York. Our Elasticon events have drawn thousands of attendees and we are looking forward to hosting six more events across the globe during fiscal Q3 and Q4. Elasticons give us the unparalleled opportunity to meet with thousands of customers, partners, prospects, and developers. to share ideas and showcase Elastic innovations. Partners play a critical role in our success. This quarter, we launched the new Elastic AI ecosystem as part of our vision to transform, simplify, and accelerate how enterprise developers build and deploy generative AI applications. Working with leading technology providers, including Alibaba Cloud, Amazon Web Services, Anthropic, Cohere, Confluent, DataRobot, Dataiku, Galileo, Google, Hugging Face, Langchain, Llama Index, Microsoft, Mistral, NVIDIA, OpenAI, ProtectAI, Red Hat, Unstructured, and Vectorize. We have built a comprehensive set of integrations with our Elasticsearch Vector Database to help developers speed up the time to develop GenAI applications. Now, switching to some organizational news. Today we are announcing that Janesh Murjani will be leaving Elastic to pursue a new opportunity. And his last day with Elastic will be December 13th. Janesh has been a key part of our leadership team over the past seven years. First as CFO and more recently as CFO and COO. And his tenure here has included a number of major milestones for the company. including leading our IPO back in 2018, and more recently, helping guide the business across the billion-dollar mark. Personally to me, Janesh has been a trusted colleague and a friend over the years, and I want to thank him personally for all that he has done during his time here. I'm looking forward to seeing all that he can accomplish in the years ahead. With this change, I'm happy to have Eric Prenger, Elastic's Group Vice President of Finance, taking on the role of Interim Chief Financial Officer effective December 14th, while the company conducts a search for a permanent replacement. Eric has been with Elastic for the past two years and has already made significant contributions to Elastic with broad responsibility for various FP&A and business partnership functions. Prior to joining Elastic, Eric spent nearly 10 years at J.P. Morgan in various investment banking leadership roles, and he was involved with Elastic even then, having worked on our IPO. I have worked closely with Eric during his time here, and I'm confident in his disciplined leadership and ability to excel in this role. As such, and not surprisingly, Eric will also be considered as a candidate in our search process. In closing, I'm pleased with our strong performance this quarter. I want to thank our team for their focused execution, and I also want to thank our customers, partners, and investors for their continued support and confidence. We are seeing positive signs that we are well on our way to returning to historical levels in terms of our pace of execution, and our Q2 performance is a strong indication of this progress. The innovations we are building into our Search AI platform, the momentum we are gaining around generative AI, And the traction we are seeing with customers consolidating onto our platform gives us great confidence in our future and in our ability to build a multi-billion dollar business over time. With that, I'll turn it over to Ganesh to go through our financial results in more detail.