Q2 2024 Elastic NV Earnings Call
Speaker 1: Good afternoon and welcome to the elastic second quarter fiscal 2024 earnings results conference call. All participants will be in listen.
Good afternoon, and welcome to the elastic second quarter fiscal 'twenty 'twenty four earnings results Conference call all participants will be in listen only mode.
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Speaker 1: After today's presentation, there will be an opportunity to ask questions.
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Speaker 1: I would now like to turn the conference over to Anthony Luskrie, Vice President Investor Relations. Let's go ahead.
I would now like to turn the conference over to Anthony loss grief, Vice President Investor Relations. Please go ahead.
Speaker 2: Thank you. Good afternoon and thank you for joining us on today's conference call to discuss elastic second quarter fiscal 2024 financial results. On the call we have Ash Kulkarni, Chief Executive Officer and Janesh Morjani, Chief Financial Officer and Chief Operating Officer. Following their prepared remarks we will take questions.
Thank you good afternoon, and thank you for joining us on today's conference call to discuss elastic second quarter fiscal 'twenty 'twenty four financial results on the call. We had ash Kulkarni, Chief Executive Officer, and generic more Johnny Chief Financial Officer, and Chief operating officer. Following their prepared remarks, we will take questions.
Speaker 2: 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 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 Dot elastic does C O.
Speaker 2: 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 risk 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.
Our discussion will include forward looking statements, which may include predictions estimates or 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 disagree.
In any obligation to update or revise these forward looking statements unless required by law.
Speaker 2: 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.
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.
Speaker 2: 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 2024 quiet period begins at the close of business on Wednesday, January 17, 2024. On December 7, 2023, we will be participating in the Barclays Global Technology Conference. With that, I'll turn it over to Ash.
Can be found in the press release and slides.
Webcast replay of this call will be available on our company website under the Investor Relations link our third quarter fiscal 'twenty 'twenty four quiet period begins at the close of business on Wednesday January 17, 2024 on December seven 2023, we would be participating in the Barclays Global Technology conference with that I'll turn it over to ash.
Speaker 3: Thank you, Anthony, and welcome back to Elastic. And thank you all for joining us today. I'm pleased with how we performed in the second quarter in what is still a challenging external environment.
Thank you Anthony and if I come back to elastic.
And thank you all for joining us today I'm pleased with how we performed in the second quarter and what is still a challenging external environment, we exceeded our expectations across both revenue and non-GAAP operating margin in Q2 revenue grew 17% year over year with elastic cloud growing 31% year over year fueled by continued improvement.
Speaker 3: We exceeded our expectations across both revenue and non-GAAP operating margin. In Q2, revenue grew 17% year-over-year, with Elastic Cloud growing 31% year-over-year, fueled by continued improvement in cloud consumption, as well as our success in generative AI. And we exceeded our profitability goal, delivering non-GAAP operating margin of 13%.
And cloud consumption as well as our success engender Tibet.
And we exceeded our profitability goal delivering non-GAAP operating margin of 13%.
Speaker 3: Elastic's mission is to enable everyone to find the answers that matter, from all data, in real time, at scale. Search is at the core of all our solutions and everything we do, whether you are searching a website or searching for security threats in your organization.
Elastic <unk> mission is to enable everyone to find the answers that matter from all data in real time at scale.
Such is at the core of all our solutions and everything we do whether you are searching our website are searching for security threats and the organization.
Speaker 3: Search is also a critical part of the infrastructure for AI.
Such is also a critical part of the infrastructure for AI.
Speaker 3: We are proud that Elastic is the leading search analytics platform used by tens of thousands of customers and supported by a large community of users. Our thoughtful investment and innovation in AI has continued to drive customer excitement and engagement with Elastic. And this was visible at our business in Q2.
We are proud that elastic is the leading search analytics platform used by tens of thousands of customers and supported by a large community of users.
Hartford investment and innovation and AI has continued to drive customer excitement and engagement with elastic and this was visible in our business in Q2.
Speaker 3: During the quarter, we continued to see recurring trends drive momentum in our business, the first of these being generative AI. I met with dozens of customers across all geographies and a recurring theme was a strong desire to use Elasticsearch Relevance Engine, or Esri, to build generative AI applications.
During the quarter, we continued to see recurring trends drive momentum in our business. The first of these being generative yeah.
I met with dozens of customers across all geographies and a recurring theme was a strong desire to use elastic search relevance engine or Ajay to build generative AI applications.
Speaker 3: Generative AI is driving a resurgence of interest in search as customers use semantic search, vector search, and hybrid search to ground large language models with their private business context and Esri provides the most comprehensive and enterprise-ready platform for these use cases.
Generative AI is driving a resurgence of interest in such as customers use semantic search vector such an hybrid search the ground large language models that they are private business context, and as Ray provides the most comprehensive and enterprise video platform for these use cases.
Speaker 3: While it will take some time for a genitive way I spend to become a significant driver of our revenue, we are very excited about the long-term opportunities.
It will take some time for generative I spend to become a significant driver of our revenue. We are very excited about the long term opportunity.
Speaker 3: As an example, we signed a multi-year marketplace deal with DocuSign, the world leader in eSignature and contract life cycle management solution.
As an example, we signed a multiyear marketplace deal with Doctor sign the World leader in Esignature and contract lifecycle management solutions.
Speaker 3: More than 1.4 million customers and more than a billion users in over 180 countries use doxifying solutions to make doing business smarter, easier and more secure.
More than one 4 million customers and more than 1 billion users in a 180 countries use Doctor science solutions to make doing business smarter easier and more secure.
Speaker 3: Search is an essential component of DocuSign's product and our advanced capabilities with semantic and vector search when enabled DocuSign to extend its capabilities.
Search is an essential component of Docker science product and our advanced capabilities with semantic Invictus search when the label dog sign to extend its capabilities.
Speaker 3: We also find a contract with a leading video sharing platform for elastic cloud via the Google marketplace to provide hybrid search, blending AI, vector search, semantic search, and reciprocal rank fusion or RRF.
We also signed a contract with a leading video sharing platform for elastic cloud why the Google marketplace to provide hybrid search blending AI vectors, such semantic search and rescue program rank fusion our RF.
Speaker 3: Offering a platform that enables millions of users to create, edit and share videos, the company is using the Elastic Search Relevance Engine that will ultimately serve as the core vector database for its millions of videos in associated metadata. The company is created and stored vector embeddings in Elastic in order to provide watchlist recommendations leading to a better search experience.
Offering a platform that enables millions of users to create edit and share videos. The companies using the elastic search relevance engine that will ultimately serve as the core vector database for its millions of videos and associated metadata.
The company has created and stored Vectored embedding an elastic in order to provide watchlist recommendations leading to a better search experience.
In Q2, we saw a significant increase in the use of SPD.
Speaker 3: In Q2, we saw a significant increase in the use of Esri. Esri includes a built-in vector database, the ability to bring in your own machine learning models, and also ELSIR, which is our own proprietary machine learning model for semantic search.
Yesterday includes a built in vector database the ability to bring in your own machine learning models and also elsewhere, which is our own proprietary machine learning model for semantic search.
Speaker 3: This quarter, we saw rapid adoption of ELSIR, which we first released with the Esri launch. With ELSIR, customers are able to quickly implement Semantic Search without any model training to power generative AI use cases.
This quarter, we saw a rapid adoption of Elsa, which we first released but theres relaunch with Elsa customers are able to quickly implement semantic search without any module training to power generative AI use cases.
Speaker 3: With the release of the even more efficient ELSER model 2 earlier this month, we expect to see this momentum continue.
With the release of the even more efficient Elsa model too earlier. This month, we expect to see this momentum continue.
Speaker 3: We also saw hundreds of additional customers starting to use Ezre for vector search use cases in Q2, building on our momentum from the first quarter.
We also saw hundreds of additional customers starting to use every four vectors search use cases in Q2.
Building on our momentum from the first quarter.
Speaker 3: We are very pleased with this growth and are also excited by the progress we have been making on the innovation front.
We are very pleased with this growth and are also excited by the progress we've been making on the innovation front.
Speaker 3: In Elastic 8.11, we delivered support for dense vectors with up to 4K dimensions, which is already greater than what embedding models require. We also delivered the first version of our machine learning inference API to improve the overall developer experience when building generative AI applications with Elasticity.
An elastic eight dot 11, we delivered support for dense sectors with up to four key dimensions, which is already greater than what embedding models required.
We also delivered the first version of our machine learning inference API to improve the overall developer experience than building generative AI applications with elastic.
Speaker 3: When search powers AI, customers are able to quickly build generative AI applications while reducing hallucinations at the lowest possible cost.
When search powers AI customers are able to quickly build generative AI applications, while reducing hallucinations at the lowest possible cost.
Speaker 3: Elastics prospects as a key component of the modern IT stack for generative AI remain extremely strong.
Elastic <unk> prospects is a key component of the modern it stack for generative AI remain extremely strong.
The second trend we saw in Q2 was customers continuing to consolidate onto the elastic platform for multiple use cases.
Speaker 3: The second trend we saw in Q2 was customers continuing to consolidate onto the elastic platform for multiple use cases.
Speaker 3: We had many key wins where we displaced incumbent solutions for observability and security and helped customers save on their overall IT spend while gaining even greater value through our many innovations.
We had many key wins, where we displaced incumbent solutions for observed at the insecurity and helped customers save on their overall spend while gaining even greater value through our many innovations.
Speaker 3: For example, we closed a multi-year eight-figure deal with a leading global wealth management company, having previously used the legacy vendor, the company moved to elastic security for SIM, for deeper threat hunting capabilities in order to keep up with data volume growth and threat sophistication.
For example, we closed a multi year eight figure deal with a leading global wealth management company.
<unk> previously used a legacy vendor the company moved to elastic security for Syn <unk>.
Deeper threat hunting capabilities in order to keep up with data volume growth and sophistication.
Speaker 3: They are confident in our cloud-native technology, as well as the speed, scalability and flexibility of Elastec, as well as our generative AI capabilities.
They are confident in our cloud native technology, as well as the speed scalability and flexibility of elastic as well as degenerative AI capabilities.
Speaker 3: Additionally, a leading risk transfer company in Europe signed a multi-year subscription with us and replaced their legacy security provider.
Additionally, a leading risk transfer company in Europe signed a multiyear subscription with us and replace their legacy security provider.
Speaker 3: Elastics stood out as their preferred solution to fortify their organization against security threats and strengthen their security posture.
Elastic stood out as the preferred solution to fortify their organization against security threats and strengthen their security posture.
Speaker 3: By leveraging elastic SIM and tapping into our advanced capabilities, such as cross-gluster search, the company can now effectively monitor and protect its large complex environment from a single pane of glass on one unified platform.
By leveraging elastic siem and tapping into our advanced capabilities, such as cross cluster search the company can now effectively monitor and protect its large complex environment from a single pane of glass on one unified platform.
Speaker 3: As customers continue to consolidate onto our platform, we have been investing in capabilities that make it possible for customers to migrate easily from incumbent solutions to elastic-
As customers continue to consolidate onto our platform.
<unk> been investing in capabilities that make it possible for customers to migrate easily from incumbent solutions to elastic.
Speaker 3: In 8.11, we launched a powerful new piped query language, Elastic Search Query Language, or ESQL.
811, we launched a powerful new piped query language elastic search query language or E SQL E.
Speaker 3: ESQL is designed to transform, enrich, and simplify data investigation with concurrent processing.
SQL is designed to transform enrich and simplified data investigation with concurrent processing.
Speaker 3: ESQL enables data aggregation and analysis across a variety of data sources from a single query, making it an incredibly powerful tool for data analysts, site reliability engineers, and security operations center analysts alike.
E SQL enables data aggregation and analysis across a variety of data sources from a single query, making it an incredibly powerful tool for data analysts site reliability engineers and security Operation Center analysts alike.
Speaker 3: The excitement from our customers and the capability in technical preview has been tremendous.
The excitement from our customers on this capability in technical preview has been tremendous.
Speaker 3: We have also been investing in our AI assistance for observability and security that make it possible for customers to leverage the power of AI to aid the humans involved in the detection, diagnosis and remediation workflows in observability and security.
We have also been investing in our AI assistance for observed lithium security that make it possible for customers to leverage the power of AI to aid the humans involved in the detection diagnosis and remediation workflows and observed at the insecurity.
Speaker 3: These AI assistants, which are in our enterprise subscription tier, are allowing us to leverage our leadership in AI, even in the areas of observability and security. And this is something that we believe will continue to be a tailwind for us. The final trend
These AI assistance the chart in our enterprise subscription tier are allowing us to leverage our leadership in AI, even in the areas of absurdity insecurity and this is something that we believe will continue to be a tailwind for us.
The final trend in the quarter was around cloud consumption.
Speaker 3: where continued improvements help drive cloud revenue growth. Customers remain.
We're continued improvements helped drive cloud revenue growth customers.
Customers remain focused on cost.
Speaker 3: but they have generally optimized their elastic deployments and are now focused on driving new workloads to elastic.
But they have generally optimize their elastic deployments and are now focused on driving new workloads to elastic.
Speaker 3: This is an area where we continue to lean in to help our customers get the most out of a lot.
This is an area, where we continue to lean in to help our customers get the most out of elastic.
Speaker 3: This customer-centric approach drives improved customer satisfaction and engagement and increases consumption over time. This drove our interest.
This customer centric approach drives improved customer satisfaction and engagement and increases consumption over time.
This drove our interest in acquiring upstart.
Speaker 3: Opster develops products for monitoring, managing, and troubleshooting Elasticsearch and OpenSearch. They are the creators of AutoOps, a powerful platform that provides deep insight to detect and resolve issues with cluster health, improve search performance, and reduce hardware costs.
<unk> develops products for monitoring managing and troubleshooting elastic search and open search.
They are the creators of auto ops, a powerful platform that provides deep insight to detect and resolve issues with clustered help improve such performance and reduce hardware costs.
Speaker 3: By joining forces with Opster, we will be able to help our customers get even more out of their elastic surge deployments and drive greater customer satisfaction and consumption.
By joining forces with <unk>, we will be able to help our customers get even more out of their elastic search deployments and drive greater customer satisfaction and consumption.
As we progress on our journey towards our service offerings, the kinds of management and monitoring capabilities that Oxford is built will make our platform, even more resilient and easier to use and I'm very excited about this future.
Speaker 3: As we progress on our journey towards our serverless offerings, the kinds of management and monitoring capabilities that Opster has built will make our platform even more resilient and easier to use. And I'm very excited about this future.
Speaker 3: Now, onto our many product innovations in Q2.
Now onto our many product innovations in Q2.
Speaker 3: In addition to the ESQL and generative AI innovations that I've already mentioned, the team delivered amazing capabilities across the Elastic Platform.
In addition to the SQL and generative AI innovations that I've already mentioned the team delivered amazing capabilities across the elastic platform.
Speaker 3: We added chat capabilities with ESQL integration to our AI assist.
We had a chat capabilities with the SQL integration through our AI assistance. This allows customers to use natural language to explain liquidity and have the AI assistant provide the SQL query syntax explain what liquidity does and provide a prompt to run the requested credit.
Speaker 3: This allows customers to use natural language to explain a query and have the AI assistant provide the ESQL query syntax, explain what the query does, and provide a prompt to run the requested query.
Speaker 3: In observability, universal profiling became generally available. And we also integrated it with application performance monitoring or APM. With this new capability, users will be able to quickly correlate application performance issues with underlying system functions without needing to switch context from APM to universal profiling.
And absurdity Universal profiling became generally available and we also integrated it with application performance monitoring or APM with this new capability users will be able to quickly correlate application performance issues, but the underlying system functions without needing to switch context from a P. M.
The universal profiling.
Speaker 3: When search powers observability, site reliability engineers have greater visibility across all signal types, reducing the time to resolve system issues.
When such powers observed Billety site reliability engineers have greater visibility across all signal types, reducing the time to resolve system issues.
In security, we delivered cloud security posture management for Google Cloud and now our customers can use elastic to secure their workloads on Google Cloud in addition to their workloads on AWS.
Speaker 3: In security, we delivered cloud security posture management for Google Cloud. And now our customers can use Elastic to secure their workloads on Google Cloud, in addition to their workloads on AWS.
Speaker 3: We also delivered out of the box integrations with WIS and Palo Alto Prisma Cloud to make it easier to get a view of the entire threat landscape in the elastic platform.
We also delivered out of the box integrations with <unk> and Palo Alto Prisma cloud to make it easier to get a view of the entire threat landscape and the elastic platform.
Speaker 3: When search power security, SOC analysts have greater visibility into difficult to detect threats, reducing the time to hunt and immediate threats.
When such power security sock analysts have greater visibility into difficult to detect threats.
Using the time to hunt and remediate threats.
Finally in search and generative AI be delivered integrations with line chain Lama index and Amazon bedrock.
Speaker 3: Finally, in search and generative AI, we delivered integrations with langchain, Lama index, and Amazon bedrock, further simplifying the developer experience and providing our customers with greater flexibility as they build generative AI applications. Now on.
Further simplifying the developer experience and providing our customers with greater flexibility as they build generative AI applications.
Now onto our go to market focus and investments.
Speaker 3: We see a tremendous opportunity ahead of us. As our search analytics platform becomes a key part of the modern IT stack for building Gen AI application.
See a tremendous opportunity ahead of us as our search analytics platform becomes a key part of the modern IP stack for building Gen AI applications.
Speaker 3: We firmly believe that our relationships with the major cloud hyperscalers will be a key factor in our success in the future. And towards that end, we are continuing to invest in these relationships.
We firmly believe that our relationships with the major cloud Hyperscale is there will be a key factor in our success in the future and towards that end, we are continuing to invest in these relationships.
Speaker 3: We just announced a new two year global strategic collaboration agreement with Amazon Web Services. This will accelerate the integration of Amazon Bedrock into the Elastic AI Assistant, enabling customers to get richer and more contextualized and relevant results by using their preferred large language model, coupled with the organization's unique IT environment and proprietary data sets.
We just announced a new two year global strategic collaboration agreement with Amazon Web services.
This will accelerate the integration of Amazon bedrock into the elastic AI assistant, enabling customers to get richer and more contextualized and relevant results by using their preferred large language model, coupled with the organizations unique environment and proprietary datasets.
Speaker 3: Also, building on our recent joint success with Google, we are accelerating and extending our joint go-to-market activities and technology integrations with Google Cloud.
Also building on our recent joint success with Google, We are accelerating and extending a joint go to market activities and technology integrations with Google cloud.
Speaker 3: Our collaboration includes the powerful combination of the elastic search relevance engine and Google Cloud's WERTX AI platform, which empowers developers with a scalable tool set to build privacy-first, gender-to-way-eye application.
The collaboration includes the powerful combination of the elastic search relevance engine and Google clouds, vertex AI platform, which empowers developers with a scalable toolset to build privacy first generative AI applications.
Speaker 3: Beyond our investments with cloud hyperscalers, we are also investing in broadening our global reach with 12 Elasticon user conferences across major cities in the Americas, Amia and APJ.
Beyond our investments with cloud Hyperscale is we're also investing in broadening our global reach with 12 elastic on user conferences across major cities in the Americas EMEA and APG.
Speaker 3: Based on the amazing customer reception we have seen to date, we expect over 5,000 in-person attendees and more than 100 customer and partner speakers to participate in Elasticon across these 12 events.
Based on the amazing customer reception, we have seen to date, we expect over 5000 in person attendees and more than 100 customer and partner speakers to participate and elastic on across these 12 events.
Speaker 3: Finally, I would like to reiterate our commitment to managing the business with discipline. We delivered a record non-GAAP operating margin of 13% for the quarter, which was better than our expectations, and we remain on track to deliver on our non-GAAP operating margin target for the full fiscal year. Janesh will talk further about this in a moment.
Finally, I would like to reiterate our commitment to managing the business with discipline.
We delivered a record non-GAAP operating margin of 13% for the quarter, which was better than our expectations and we remain on track to deliver on our non-GAAP operating margin target for the full fiscal year <unk>.
<unk> will talk further about this in a moment.
Speaker 3: To recap, we had an excellent quarter. I'm pleased with how we managed the business with discipline, executed on our strategy, and I'm very excited about the second half of the year.
To recap.
We had an excellent quarter.
I am pleased with how we manage the business with discipline executed on our strategy and I'm very excited about the second half of the year.
Speaker 3: At a time when companies are looking for ways to reduce costs and gain efficiencies without sacrificing innovation, especially around generative AI, Elastic's Search Analytics platform is becoming the natural choice for these businesses.
At a time when companies are looking for ways to reduce costs and gain efficiencies without sacrificing innovation, especially around agenda to V. I.
Elastic search analytics platform is becoming the natural choice for these businesses.
Speaker 3: We view gendered away as a massive tailwind that will continue to benefit our business in the years to come.
We view generative AI as a massive tailwind that will continue to benefit our business in the years to come.
Speaker 3: In closing, 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. Now I'll turn it over to Janesh to go through our financial results in more detail.
In closing 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 now I'll turn it over to Jim to go through our financial results in more detail.
Speaker 4: Thanks Ash, we once again delivered a strong quarter driven by consistent execution despite the complex external environment.
Thanks Ash, we once again delivered a strong quarter driven by consistent execution. Despite the complex external environment.
Speaker 4: We were pleased that we came in above the high end of our guidance for the quarter, both on the top line and the bottom line. We delivered 17% Euroveyor growth in total revenue in the second quarter, with elastic cloud driving our strong results, accelerating to 31% Euroveyor growth.
We were pleased that we came in above the high end of our guidance for the quarter, both on the topline and the bottom line, we delivered 17% year over year growth in total revenue in the second quarter with elastic cloud driving our strong results accelerating to 31% year over year growth.
Speaker 4: We continued our focus on profitability, delivering another record quarter with non-GAAP operating margin of 13%, reflecting improved consumption trends versus Q1 and our strong investment discipline, and demonstrating the leverage inherent in our business model as we continue to scale the business.
We continued our focus on profitability delivering another record quarter with non-GAAP operating margin of 13%, reflecting improved consumption trends versus Q1, and our strong investment discipline and demonstrating the leverage inherent in our business model as we continue to scale the business.
As I just mentioned, we continue to see strong customer engagement around generative AI use cases, we.
Speaker 4: As RASH mentioned, we continue to see strong customer engagement around generative AI use cases. We are increasingly seeing customers make technical decisions to select the last stick based on our product leadership position. The multi-ear investments we have been making in generative AI are beginning to positively impact our go-to-market, especially around search specific use cases, and we are positioned to be a long-term leader in the space.
We are increasingly seeing customers make technical decisions to select elastic based on our product leadership position. The multiyear investments we have been making in generative AI are beginning to positively impact our go to market, especially around search specific use cases, and we are positioned to be a long term leader in the space.
Speaker 4: While we expect generative AI will present a meaningful revenue opportunity for us in the coming years, we believe it will take some time for the revenue from Gen AI to become single.
While we expect generative AI will present, a meaningful revenue opportunity for us in the coming years, we believe it will take some time for the revenue from Jennie O to become significant.
During the second quarter, we saw continued improvements in cloud consumption patterns as customers increase their consumption against commitments that they had previously made.
Speaker 4: During the second quarter, we saw continued improvements in cloud consumption patterns as customers increased their consumption against commitments that they had previously made. With that said, we continue to monitor consumption patterns against the backdrop of an evolving macro and geopolitical environment. While many customers have already gone through optimization of their consumption use cases, we do continue to see cost consciousness and spend management as themes in the market. Let's get deeper into the results.
With that said, we continue to monitor consumption patterns against the backdrop of an evolving macro and geopolitical environment. While many customers have already gone through optimization of their consumption use cases, we do continue to see cost consciousness and spend management as teams in the market.
Lets get deeper into the results for Q2 and our outlook.
Speaker 4: Total revenue in the second quarter was 311 million dollars, up 17% Euro a year or 16% Euro a year on a constant currency basis.
Total revenue in the second quarter was $311 million up 17% year over year or 16% year over year on a constant currency basis subscription.
Speaker 4: Subscription revenue in the second quarter totaled $288 million, up 19% year over year or 18% year over year in constant currency and comprised 93% of total revenue.
Revenue in the second quarter totaled $288 million up 19% year over year or 18% year over year in constant currency and comprised 93% of total revenue.
Within subscriptions revenue from elastic cloud was $135 million growing 31% year over year on an as reported basis or 30% year over year on a constant currency basis, reflecting the stronger consumption trends I just mentioned elapsed.
Speaker 4: Elastecloud represented 43% of total revenue in the quarter up from 39% a year ago.
Elastic cloud represented 43% of total revenue in the quarter up from 39% a year ago.
Speaker 4: Elastakloud revenue derived from month to month arrangements contributed 15% of total revenue, the same as in the prior quarter.
Elastic cloud revenue derived from month to month arrangements contributed 15% of total revenue the same as in the prior quarter.
Speaker 4: Professional services revenue in the second quarter was $23 million, down 1% Eurovia on an as reported basis, and down 3% Eurovia on a constant currency base.
Professional services revenue in the second quarter was $23 million down 1% year over year on an as reported basis and down 3% year over year on a constant currency basis as we've said before our professional services revenue may fluctuate across quarters based on the timing of services delivery and we do not expect it to do very significantly in mix over time.
Speaker 4: As we said before, professional services revenue may fluctuate across quarters based on the timing of services delivery, and we do not expect it to vary significantly in mix over time.
Speaker 4: To add more context around overall deal flow, EMEA grew fastest during the quarter, followed by APJ and the Americas. We continue to see a healthy balance across the business based on geography, solutions, and verticals, and this diversification reflects the breadth and popularity of our platform.
Do add more context around overall deal flow EMEA grew fastest during the quarter followed by a P. J in the Americas.
We continue to see a healthy balance across the business based on geography solutions and verticals and this diversification reflects the breadth and popularity of our platform.
Moving onto customer metrics.
Speaker 4: We ended the quarter with over 1,220 customers with annual contract values more than $100,000.
We ended the quarter with over 1220 customers with annual contract values more than $100000.
Speaker 4: Looking at customer additions more broadly, we ended the quarter with over $4,230 customers above $10,000 in ACV, and approximately $20,700 total subscription customers.
Looking at customer additions more broadly we ended the quarter with over 4230 customers above $10000 in HCV and approximately 20700 total subscription customers.
Speaker 4: On net expansion rate, which as you know is a trailing 12 month lagging indicator, was approximately 110% in line with our expectation for the quarter.
Our net expansion rate, which as you know is a trailing 12 months lagging indicator was approximately 110% in line with our expectation for the quarter.
Speaker 4: Now turning to profitability for which I'll discuss non- GAAP measures .
Now turning to profitability for which I will discuss non-GAAP measures.
Speaker 4: Gross margin in the quarter was 76.8% versus 76.5% in the prior quarter, reflecting a slightly higher subscription.
Gross margin in the quarter was 76, 8% versus 76, 5% in the prior quarter, reflecting a slightly higher subscription mix.
Speaker 4: Our operating margin in the quarter was 13%, which was better than expected. The strong operating margin performance was driven by our revenue outperformance and our continued focus on managing our expenses as we invest thoughtfully to drive future growth.
Our operating margin in the quarter was 13%, which was better than expected the.
The strong operating margin performance was driven by our revenue outperformance and our continued focus on managing our expenses as we invest thoughtfully to drive future growth.
Diluted earnings per share in the second quarter was 37 cents.
Speaker 4: Diluted earnings per share in the second quarter was 37 cents.
Speaker 4: Our free cash flow on an adjusted basis was negative $3 million in the quarter or negative 1% adjusted free cash flow margin in line with the expectations we had previously shared.
Our free cash flow on an adjusted basis was negative $3 million in the quarter or negative 1% adjusted free cash flow margin in line with the expectations. We had previously shared.
Speaker 4: As we stated on our previous call, there was some cash collection and payment timing movements between the first and second quarter, as well as one time payments of $13 million in Q2 that related to previously completed acquisition.
As we stated on our previous call. There was some cash collection and payment timing movements between the first and second quarter as well as one time payments of $13 million in Q2 that related to previously completed acquisitions.
Speaker 4: For the full fiscal year, there is no change in our prior outlook and we continue to expect free cashflow margin on an adjusted basis for fiscal 24 to be slightly above the non-gap operating margin for fiscal 24.
For the full fiscal year, there was no change in our prior outlook and we continue to expect free cash flow margin on an adjusted basis for fiscal 'twenty four to be slightly above the non-GAAP operating margin for fiscal 'twenty four.
Speaker 4: We continue to maintain a strong balance sheet. We ended the second quarter with cash, cash equivalents and marketable securities of $966 million.
We continue to maintain a strong balance sheet. We ended the second quarter with cash cash equivalents in marketable securities of $966 million.
Turning to guidance, while we were very pleased with our outperformance in the first half of fiscal 'twenty four we continue to be prudent as we plan for the rest of the year.
Speaker 4: While we were very pleased with our outperformance in the first half of fiscal 24, we continue to be prudent as we plan for the rest of the year. Despite the many moving parts in the broader macro climate, we anticipate that business conditions will remain largely unchanged.
Despite the many moving parts in the broader macro climate, we anticipate that business conditions will remain largely unchanged.
Speaker 4: We do expect to see growth in both self-managed and cloud subscription revs.
We do expect to see growth in both self managed and cloud subscription revenue.
Speaker 4: Additionally, though we are seeing customers ramp their consumption and we've been very pleased with that trend, we believe it is appropriate to anticipate that consumption patterns may continue to fluctuate in the near term.
Additionally, though we are seeing customers ramp their consumption and we've been very pleased with that trend. We believe it is appropriate to anticipate that consumption patterns may continue to fluctuate in the near term.
Speaker 4: In terms of operating expenses, as we execute in the second half of this year, it will be important for us to exit the year with an appropriate level of investment to secure our success for next year.
In terms of operating expenses as we execute in the second half of this year it will be important for us to exit the year with an appropriate level of investment to secure a successful next year.
Speaker 4: Therefore, we continue to invest with discipline in the business as we drive increasingly profitable growth on an annual basis.
Therefore, we continue to invest with discipline in the business as we drive increasingly profitable growth on an annual basis.
Speaker 4: In addition to incremental organic investments in the second half, our model assumes approximately $12 million of seasonally higher expenses in the fourth quarter related to the timing of employee benefit costs and our engineering all-hands event.
In addition to incremental organic investments in the second half our model assumes approximately $12 million of seasonally higher expenses in the fourth quarter related to the timing of employee benefit costs and our engineering all hands event.
Speaker 4: We have experienced similar seasonality in prior years, and these expenses were anticipated in the guidance that we had initially laid out for the year.
We have experienced similar seasonality in prior years and these expenses were anticipated in the guidance that we had initially laid out for the year.
With that background for the third quarter of fiscal 'twenty four we expect total revenue in the range of $319 million to $321 million, representing 17% year over year growth at the midpoint or 16% on a constant currency basis.
Speaker 4: With that background for the third quarter of fiscal 24, we expect total revenue in the range of $319 million to $321 million, representing 17% your way of growth at the midpoint, or 16% on a constant currency base.
Speaker 4: We expect non-gap operating margin for the third quarter of his good wedding for in the range of 11.5% to 12% and non-gap earnings per share in the range of 30 cents to 32 cents, using between 103 million and 104 million diluted weighted average ordinary shares outstand.
We expect non-GAAP operating margin for the third quarter of fiscal 2004 in the range of 11, 5% to 12% and non-GAAP earnings per share in the range of 30 to 32 cents using between $103 million and 104 million diluted weighted average ordinary shares outstanding.
For full fiscal 'twenty four we are raising our outlook and now expect total revenue in the range of one to $4 7 billion to $1 253 billion, representing 17% year over year growth at the midpoint or 16% on a constant currency basis.
Speaker 4: For FURFUS Code 24, we are raising our outlook and now expect total revenue in the range of 1.247 billion to 1.253 billion, representing 17% your way of growth at the midpoint or 16% on a constant currency base.
Speaker 4: We expect non-gap operating margin for full fiscal 24 in the range of 10.25% to 10.75%. And non-gap earnings per share in the range of $1.6 to $1.15, using between 102 million and 104 million diluted weighted average ordinary shares outstanding.
We expect non-GAAP operating margin for full fiscal 'twenty four in the range of $10, two 5% to 10, 75% and non-GAAP earnings per share in the range of $1.06 to $1.15 using between $102 million and 104 million diluted weighted average ordinary shares outstanding.
Speaker 4: Looking beyond this fiscal year, we continue to expect to grow revenue faster than overall expenses in fiscal 25, further expanding our non-GAAP operating margin.
Looking beyond this fiscal year, we continue to expect to grow revenue faster than overall expenses in fiscal 'twenty five further expanding our non-GAAP operating margin.
Speaker 4: In summary, we are pleased with our strong performance in the first half and our confidence in our outlook for the rest of the year. And with that, let's go ahead and take questions, operator. We will now begin.
In summary, we are pleased with our strong performance in the first half and are confident in our outlook for the rest of the year and with that let's go ahead and take questions operator.
We will now begin the question and answer session to.
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The first question is from Brent Thill with Jefferies. Please go ahead.
Speaker 1: The first question is from Brent Thill with Jeffries. Please go ahead.
Thanks Ash.
So if you could just talk about the timing of revenue impact with AI and how you expect that to unfold.
And quickly for Dinesh.
There was a few client questions around an IRR lower new logo growth I'll also slower, but now seen good strength in cloud could you just break that apart and give us a little better view of what you're seeing thanks.
Speaker 5: break that apart and give us a little better view of what you're seeing. Thanks.
Speaker 3: Thanks for the question, Brent. So, you know, just, first of all, very pleased with the overall performance in Q2, and, you know, particularly like I talked about in the prepared remarks, the adoption of Ezrae. And as you know, you know, Ezrae includes not just our native vector search capability, but so much more beyond that. And we are seeing customers really adopting that incredibly well. And, you know, we also saw in the quarter that customers are making their purchase decisions.
Thanks for the question Brent So just first of all very pleased with the overall performance in Q2, and particularly like I talked about in the prepared remarks, the adoption of <unk>.
And as you know.
It includes not just our native Victor search capability, but so much more beyond that and we are seeing customers really adopting that incredibly well.
And we also saw in the quarter that customers are making their purchase decisions for all kinds of use cases looking at the kind of leadership position that we have in generative AI.
Speaker 3: for all kinds of use cases, looking at the kind of leadership position that we have in Genitive AI, and seeing that the innovations that we are driving there is gonna help them in all kinds of use cases.
And seeing that the innovation that we're driving there is going to help them in all kinds of use cases.
Speaker 3: In terms of the monetization, what I'd say is it's still early days. It's going to take some time for customers to ramp the usage of these genitive AI workloads. So it isn't a significant contribution to revenue at this time, but we are pleased with the contribution to consumption that we're already seeing in these early phases from these gen AI use cases. Let me turn it to genesh for the-
In terms of the monetization what I'd say is it's still early days, it's going to take some time for customers to ramp the usage of these generative AI workloads. So it isn't a significant contribution to revenue at this time, but we are pleased with the contribution to consumption that we're already seeing it.
These early phases from these Jenny I use cases, let me turn it to June ish for the second question.
Speaker 4: Hey Brent, so on the net expansion rates and cloud consumption trends, first off, when I just step back and look at Q2 overall, we were very happy with our overall performance. When you look at the numbers on revenue and on cloud growth, there was a lot for us to be pleased about. The net expansion rate, as you know, is a lagging indicator and it's a trailing 12-month measure. So even as cloud consumption ramps up, like we saw here in Q2,
Hey, Brent so on the net expansion rates and cloud consumption trends first off and I just step back and look at Q2 overall, we are very happy with our overall performance. When you look at the numbers on revenue and on cloud growth. There was a lot for us to be pleased about the net expansion rate as you know is a lagging indicator and it is a trailing 12 month measure so even as cloud.
Consumption ramps up like we saw here in Q2.
Speaker 4: It will take some time for that consumption to be fully reflected in the net expansion rate. And that's why when I think about the business, I usually look at revenue as the best indicator of current performance.
It will take some time for that consumption to be fully reflected in the net expansion rate and thats why when I think about the business I usually look at revenue is the best indicator of current performance and so I think the net expansion rate can continue to move a few points in either direction in the near term, but generally we expect that the trends in consumption over time should alleviate some of the downward pressure that we.
Speaker 4: So I think the net expansion rate can continue to move a few points in either direction in the near term, but generally we expect that the trends in consumption over time should alleviate some of the downward pressure that we had experienced in the net expansion rate over the past few quarters.
<unk> experienced in the net expansion rate over the past few quarters.
Speaker 4: The other piece that you mentioned was on consumption overall. If I just step back and think about some of the consumption trends we saw.
The other piece that you mentioned was on consumption overall, if I just step back and think about some of the consumption trends, we saw pretty healthy patterns across industries and across geographies. It was broad based.
Speaker 4: pretty healthy patterns across industries and across geographies it was brought based uh... our senses that optimization has stabilized
Sensors that optimization has stabilized customers are still cost conscious as we mentioned, but generally there where I think they want to be on the optimization. So we see customers ramping their consumption towards their commitment levels and we are very pleased that we're able to help them scale their usage and realize the value of our solutions. So so.
Speaker 4: Customers are still cost-conscious, as we mentioned, but generally they are where I think they want to be on the optimization. So we see customers ramping their consumption towards their commitment levels.
Speaker 4: And we are very pleased that we're able to help them scale their usage and realize the value of our solutions. So those are some of the puts and takes. And we're quite happy with Q2 and looking forward to the rest of the year.
Those are some of the puts and takes and we're quite happy with Q2 and looking forward to the rest of the year.
Thanks Welcome back Anthony.
The next question is from Raimo <unk> with Barclays. Please go ahead.
Speaker 1: The next question is from Rimo Lenchow with Barclays. Please go ahead.
Hey, Thanks, and congrats from me as well two quick questions one for ash and one food.
Speaker 6: Thanks and congrats for me as well. And two quick questions, one for Ash and one for Janesh. And Ash, if you think about it, you obviously did the strong player in search. And now with the AI capabilities and S-Ray, you're able to revisit that installed base. What do you see in terms of the overall reviving that search kind of client base?
And if you think about it you obviously the strong player in search and now with the AI capabilities in Australia.
Able to revisit that.
Stalled base like what do you see in terms of like the overall reviving that surge kind of.
Client base.
Speaker 6: kind of re-engaging with them a lot more here. And what are you seeing here in pipeline customer conversations etc.
Re engaging with them a lot more here and what are you seeing in pipeline customer conversations et cetera, because that seems to me like it.
A nice peak opportunity to just kind of revisit kind of reengage with clients and the second question for you on it.
Speaker 6: kind of reengage the client here. And the second question for Jan, for Jan is like, you talked about the consumption trends. Just on that note, if I look at the implied guidance for Q4, that does look like a, you know, a.
You talked about the consumption trend.
Just on that note if I look at the implied guidance for Q4.
It does look like.
Very kind of small additional number coming in yet.
Speaker 6: very small additional number coming in there. If there's anything specific on Q4 that's of concertedism, thank you.
Anything specific in Q4 or is that just conservatism. Thank you.
Speaker 3: Yeah, Rangmo, thanks for the question. So, you know, I think, like I mentioned, even in my prepared remarks, the
Yeah Raimo. Thanks for the question So you know.
I think like I mentioned, even in my prepared remarks the.
Speaker 3: Generative AI is really driving a resurgence of interest in search.
Generative AI is really driving a resurgence of interest in search.
Speaker 3: And you know, I've been on the road quite a bit meeting with our customers. We recently in just this past few months had
And you know I've been on the road quite a bit meeting with our customers. We recently and just this past few months had a multiple elastic on events first here in San Francisco than in Frankfurt, and Amsterdam, literally hundreds of customers many customer speakers.
Speaker 3: A multiple elastic on events, first year in San Francisco, then in Frankfurt, then in Amsterdam, literally hundreds of customers, many customer speakers.
Speaker 3: So I had the opportunity to meet with many of our clients there also at AWS reInvent earlier this week I was there in person meeting with our customers and some of our partners
So I had the opportunity to meet with many of our clients. They're also at AWS re invent earlier. This week I was there in person meeting with our customers and some of our partners and across the board would be or what we are hearing what I'm seeing is a significant interest in generative AI and in a lot of it is around use cases.
Speaker 3: And across the board, what we are hearing, what I'm seeing is a significant interest in generative AI. And a lot of it is around use cases that we would traditionally...
We would traditionally bucket into the category of search and.
Speaker 3: bucket into the category of search. And the thing that we are seeing is a lot of the interest is around trying to completely change.
The thing that we're seeing is a.
A lot of the interest is around trying to completely change customer experiences trying to completely change support experiences.
Speaker 3: customer experiences trying to completely change support experiences.
Speaker 3: And there's these use cases across the board in every vertical. So that's something that we feel really, really good about in terms of the long term position and the long term view for us.
And there's there's use cases across the board in every vertical so that's something that we feel really really good about in terms of the long term position in the long term view for us and over the long haul what can do in terms of Tam expansion.
Speaker 3: and over the long haul, what can do in terms of tam expansion in the overall area of search. You know, the other thing that I'll say is right now, what I'm seeing is a lot of the use cases that are being put into production are internal facing. So, you know, customers are building chat experiences or customers are building applications.
In the overall area of search.
The other thing that I'll say is right now what I'm seeing is a lot of the use cases that are being put into production.
Our internal facing so.
<unk> are building.
Chat experiences or customers that are building applications that are viewed by either their internal support engineering teams are there internal authority teams are there internal.
Employee portals, and so on and that's largely because they are getting a level of comfort with these larger language models and that's also where they really find a lot of value in elastic because you know the ability that elastic provides to ground. These large language models in the context of their businesses is something that they saw.
See a lot of value from in terms of reducing hallucinations and so on and overtime. We believe that that's going to then make it possible for them to expand to external end user facing use cases and that then again, it's going to be another expansion of the overall opportunity. So very excited and absolutely. This is something that we are leaning in on.
Speaker 4: them to expand to external end user-facing use cases. And that then again is going to be another expansion of the overall opportunity. So very excited. And absolutely, this is something that we are leaning in on. And let me turn it to Janesh on your second question. Hey, Ryan Moss, as I think about the guidance and trying to unpack that. Maybe just commenting on the second half first and then all the time on Q4 as well. Overall, for the second half, the way we approached it was just recognizing that we've seen good strong consumption patterns here as customers are scaling their usage up to their committed levels. And if I think about the external environment, the macro is generally stable. But as we said, cost consciousness continues to be a theme in the market and is important for customers. So we've benefited from that to a degree as customers have made greater commitments to us.
Let me turn it to John as Sean Your second question.
Speaker 4: Hey, Raimus. As I think about the guidance and trying to unpack that, maybe just commenting on the second half first, and then I'll touch on Q4 as well. Overall, for the second half, the way we approached it was just recognizing that we've seen good, strong consumption patterns here as customers are scaling their usage up to their committed levels.
Hey, Raimo, so as I think about the guidance and trying to unpack that maybe just commenting on the second half first and then I'll touch on Q4 as well.
Overall for the second half the way we approached it was just recognizing that we've.
We've seen good strong consumption patterns here those customers are scaling their usage up to their committed levels.
Speaker 4: And if I think about the external environment, the macro is generally stable. But as we said, cost consciousness continues to be a theme in the market and is important for customers. So we've benefited from that to a degree as customers have made greater commitments to us.
And if I think about the external environment. The macro was generally stable, but as we said cost consciousness continues to be a theme in the market and is important for customers. So we've benefited from that to a degree as customers have made greater commitments to us, but we've also seen in the past that that can cause consumption to fluctuate of customers drive operational.
Speaker 4: But we've also seen in the past that that can cause consumption to fluctuate if customers drive operational changes. So we've simply considered that possibility of potential consumption fluctuation in the future as we built our guidance.
Changes, so we've simply considered that possibility of potential consumption fluctuation in the future as we built our guidance.
Speaker 4: And just for clarity, we've not actually seen any big shift in the external environment, but we just think it's best to plan prudently. We're executing really well, we're excited, we're confident about the rest of the year. And specific to Q4, I'll just point out that there's the only unique thing about Q4 is it's slightly shorter quarter for us.
And just for clarity, we have not actually seen any big shift in the in the external environment, but we just think it's best to plan prudently.
We're executing really well we're excited we're confident about the rest of the year and specific to Q4 I'll just point out that there's the only unique thing about Q4 as its a slightly shorter quarter for us given that 2024 will be a leap year Q4 will have 90 days in sort of 92 days. So that's just something that creates a bit of a headwind in Q.
Speaker 4: Given that 2020 fall will be a leap year, Q4 will have 90 days instead of 92 days. So that's just something that creates a bit of a headwind in Q4. Okay.
Four.
Okay makes sense. Thank you congrats again.
The next question is from <unk> Kidron with Oppenheimer. Please go ahead.
Hey, guys. This is a personal one three times.
Can you hear me.
Yes.
Got it so earlier this year you guys gave us some update on the 2 billion dollar revenue target and how that timeline has been extended a bit challenging macro.
But now with the environment.
A bit more stable consumption, starting to improve and the momentum youre seeing with generative AI I'm. Just curious is there anything you can share on that timeline.
Versus eight months ago has that maybe moved up a bit forward.
Hey, How's shell DISA jaenisch so.
We went through that $2 billion goal sometime back but the way we think about this fundamentally is that we've got a significant opportunity ahead of us and we're working hard to prosecute that opportunity you've seen tremendous momentum here from the standpoint of the overall business and particularly in terms of cloud growth.
As we address that opportunity and all of that is additionally, fueled by the momentum that we're seeing and generative AIA. So we don't want to get too far ahead and start to predict future revenue growth beyond this year at this stage, but theres no question in our minds that we are working hard to build a multibillion dollar company at scale in.
The future and we will provide you with appropriate updates as we go on that but for now we're focused on executing in this year and feel very good about the back half of the year.
Speaker 5: That's helpful. And then just on NRR, is this 110% level in the scenario where we should expect it to kind of bottom out? And as we looked at a fiscal 25, what levers do you see that could get NRR back up to the stroke level?
Got it that's helpful and then just on NR.
Is this a 110% level is this an area, where we should expect it to kind of bottom out and as we looked at our fiscal 'twenty five what levers do you see that could get in there on a backup to the historical level.
Yeah as I mentioned, just a couple of minutes ago, because the net expansion rate is a lagging indicator.
Even as cloud consumption ramps. It just takes time for that to be reflected in the net expansion rate. So I think it can move a couple of points in either direction in the near term and but over time what.
What will help drive the net expansion rate is increasing consumption and.
As we move forward.
As consumption ramps that will alleviate some of the downward pressure that we had extreme experience previously and and growth in cloud and our.
Speaker 4: rates of consumption will help overall as we progress into the future.
Rates of consumption will help overall as we are as we progress into the future.
Got it very helpful. Thanks, guys.
The next question is from pendulum Bora with J P. Morgan. Please go ahead.
Oh, great. Thanks, guys congrats on the quarter.
It seems like <unk> is opening up a lot of customer conversations and there's a lot of positivity wholesome all these conversations expanding into something more than just AI and security ops.
The EIA is the entry point to drive larger deals across the board is emotion that could accelerate growth and then one for John is any way to understand the cloud consumption trends so far in November in Q3.
Speaker 6: Hey, Pinchal and thanks for the question. So, you know, the way we see it is that in the areas of search
Okay pendulum. Thanks for the question So you know.
The the way we see it is that in the areas of search that is a clear expansion of the Tam that is likely going to happen just given the momentum that we're seeing the resurgence of interest in our in search and.
Speaker 3: There is a clear expansion of the TAM that is likely going to happen just given the momentum that we're seeing. The resurgence of interest in in search.
Speaker 3: and the kinds of use cases that people are are both imagining and starting to build.
And the kinds of use cases that people are are imagining and starting to build.
Speaker 3: you know that's going to be uh... something that we feel in the long term is going to be very material uh... in the areas of observability and security the the a i assistance that we have launched in the kinds of
That's going to be something that we feel in the long term is going to be very material in the areas of absurdity in security. The AI assistance that we've launched and the kinds of really compelling capabilities that we've delivered you know the ability through natural language to auto generate SQL.
Speaker 3: really compelling capabilities that we've delivered, you know, the ability through natural language to auto-generate.
Speaker 3: uh... es q l uh... commands and then to understand what the queries mean and then have to you know have the system automatically execute them through the prompt
And then to understand what liquidity is mean and then have to have the system automatically execute them through the prompt just makes the life of a site reliability engineers for visibility or a sock analyst for security so much easier they're able to do their work with the system guiding them through.
Speaker 3: just makes the life of a site reliability engineer for observability or a SOC analyst for security so much easier. They are able to do their work with the system guiding them through the whole journey, everything from detection to diagnosis to remediation. And that we feel is very powerful. And that's actually something that our sales teams will often lead with when they are having a conversation around observability and security. In a bad demonstration, the ease of use that it brings to our overall platform is incredibly compelling and we believe that that's going to help us.
The whole journey everything from detection to diagnosis to remediation and that we feel is very powerful and that's actually something that our sales teams will often lead with when they're having a conversation around observed in security.
That demonstration the ease of use that it brings to our overall platform is incredibly compelling and we believe that that's going to help us really change and improve our competitive positioning in both observed at the insecurity and that's something that we're seeing you know where I talked about the fact that.
Speaker 3: really change and improve our competitive positioning in both observability and security. And that's something that we are seeing. We are, I talked about the fact that we had many customers consolidate onto our platform, competitive wins where we displaced incumbents. You know, a lot of those discussions we lead with.
We had many customers consolidate onto our platform competitive wins, where we displaced incumbents.
Out of those discussions we lead with the AI assistant and how we showcase our platform. So that's definitely something that I'm very excited about.
Speaker 3: the AI assistant and how we showcase our platform. So that's definitely something that I'm very excited about.
Speaker 4: And in terms of the observations on November , I think it's a little too early to tell November isn't even over yet. And as we've said before, there can be fluctuations within a single month as we look at the pool of customers. So we tend not to rely too much on a single month of data. So I can't share a specific view on November just yet. But I can tell you that the trends that we experienced in the quarter that I described earlier were broad-based. And we felt very good about that in Q2.
And pendulum in terms of the observations on November I think it's a little too early to tell on November isn't even over yet and you know as we've said before there can be fluctuations within a single month as we look at the pool of customers. So we tend not to rely too much on a single month of data. So I can share a specific view on November just yet.
But I can tell you that the trends that we experienced in the quarter that I described earlier were broad based and we felt very good about that in Q2.
Got it thank you.
Speaker 1: The next question is from Brad Reback with Stifel. Please go ahead.
The next question is from Brad Reback with Stifel. Please go ahead.
Speaker 7: Great, thanks very much. Last year, and he can't be really looking quarter as customers began to increase their commits. How should we think about that Tom?
Great. Thanks very much.
Well last year.
In our release.
Core customers.
Okay.
Because of that.
How should we think about.
This quarter.
Speaker 4: Hey Brad, your voice was a little bit muffled, but I think you were asking about Eurovia comps from a commitment standpoint.
Hey, Brad your voice was a little bit muffled, but I think you were asking about year over year comps on from a commitment standpoint.
Speaker 4: And the way I think about, great, the way I think about that is, customers are continuing to make commitments to elastic. We've seen that strength in commitment.
And the way I think about great. The way I'd think about that is.
Customers are continuing to make commitments to elastic we've seen that strengthen commitment as we think about just ongoing execution that we have as we think about the engagement that our field teams have with them ash talked about all of the trends in generative AI that are continuing to to provide a good tailwind to that so we feel very.
Speaker 4: As we think about just ongoing execution that we have, as we think about the engagement that our field teams have with them, Ash talked about all of the trends in generative AI that are continuing to provide a good deal. Win to that.
Speaker 4: So we feel very good about our overall position in front of customers.
Good about our overall position in front of customers and in terms of how that translates into specific commitments for Q3.
Speaker 4: In terms of how that translates into specific commitments for Q3.
Speaker 4: it's too early to tell for that and again we aren't going to sort of provide forward views on commitment or booking oriented measures.
It's too early to tell for that and again, we aren't going to sort of provide forward views on on commitment bookings oriented measures are we feel very good about the revenue outlook, we provided and I think that continues to be the primary measure for us in the business.
Speaker 4: We feel very good about the revenue outlook we've provided and I think that continues to be the primary measure for us in the business.
Speaker 7: That's great. And just a quick follow up on something you said earlier, on the staff side as customers are scaling to their committed levels. Are those customers at their committed levels still below the end of opportunity to move higher or are they consuming an access to that? Thanks.
And just one quick follow up on something.
Earlier on the SaaS.
Scaling there.
Yes.
And those customers are committed levels still below.
Higher or consuming and access.
Speaker 4: Yeah, it's obviously a broad pool of customers. So different customers will be at different stages. The point I was making earlier is that as customers have been ramping, they're approaching as a general matter, the levels of commitment that they had. We, there are obviously some customers within that that are consuming above those levels and then it becomes a good opportunity for us to go and drive expansion conversations with them.
Yes, it's obviously a broad pool of customers so different customers will be at different stages.
The point I was making earlier is that as customers have been ramping theyre approaching as a general matter the levels of commitment that they had we've we'll there are obviously some customers within that that are consuming above those levels and then it becomes a good opportunity for us to go and drive expansion conversations with them.
Speaker 4: and there are some customers that are still below those levels, but on balance we've seen customers continuing to ramp as the quarters progressed.
And there are some customers that are still below those levels, but on balance we've seen customers continuing to ramp as the quarters progressed.
Excellent. Thanks.
The next question is from Matt Hedberg with RBC capital markets. Please go ahead.
Speaker 1: The next question is from Matt Hedberg with RBC Capital Markets. Please go ahead.
Speaker 2: Great. Thanks for taking my questions and congrats from me as well. Uh, Ash, I was wondering, you know, on the initial Gen AI interest, you know, obviously there's, there's a lot of other competitors out there, uh, that have solutions. I'm sort of curious, you know, when customers are faced with the choice, you know, what is sort of that tipping factor thus far? Is it, you know, some of the, the role level security, is it, you know, just, I'm just very curious, are there some commonalities of why elastic versus others?
Great. Thanks for taking my questions and congrats from me as well.
I was wondering on the initial gen AI interest, obviously theres a lot of other competitors out there.
<unk> solutions I'm sort of curious when customers are faced with the choice.
What is sort of that tipping factor thus far is it.
Some of the ROE level security is just I'm just really curious if are there some commonalities of Hawaii elastic versus others at this point.
Speaker 3: Yeah, absolutely. You know, I'd say break it down to roughly four categories of clear differentiation that our customers keep telling us.
Yeah, absolutely you know I'd say I'd break it down to roughly four categories of clear differentiation that our customers keep telling us.
Speaker 3: They see in our product and platform, you know, as they evaluate death against all the options out there and the reason why they choose us. The first and foremost is, and I hear this very consistently that they find that our vector database functionality is absolutely stellar.
They they see in our product and platform as they as they evaluate this against.
All the options out there and the reason why they choose us first and foremost as I hear this very consistently that the.
They find that our vector database functionality is absolutely stellar.
Speaker 3: in terms of how it scales, in terms of the fact that it's built deep into the platform, and it's built in such a way that you get the benefit of all the other functionality that we've built over the years.
In terms of how it scales in terms of the fact that it has built deep into the platform and its built in such a way that you get the benefit of all the other functionality that we've built over the years. So that's first and foremost something that'd be hearing over and over again, the second thing that.
Speaker 3: So that's first and foremost something that we hear over and over again. The second thing that we are very proud of is, generative AI, it's more than just having a vector database, because there's so much more that you need to do in terms of finding absolutely the most relevant information to pass this context.
We are very proud of is a degenerative AI, it's more than just having a vector database straight because there's so much more that you need to do in terms of finding absolutely. The most relevant information to pass as context to the larger language model and that requires more than just a vector database. It requires you to have semantic search.
Speaker 3: to the large language model. And that requires more than just a vector database. It requires you to have semantic search, hybrid search functionality, because often that will result in the most optimized and most correct.
Our hybrid search functionality, because often that would result in the most optimized and most correct.
Speaker 3: you know, most relevant information, more advanced features like reciprocal rank fusion. And this, you know, when you talk about context, there are even other things like personalization, geolocation, filtering, all of these aspects that you just get as part of it along with the privacy and the role of security and so on, which you mentioned. So that's the second big reason because there is that set of capabilities.
You know most relevant information.
More advanced features like reciprocal rank fusion and this you know when you talk about context for that or even other things like personalization geolocation filled.
Filtering all of these aspects that you just get as part of it along with the privacy and the ROE level security and so on which you mentioned so that's the second Big reason because there is there is that that.
Set of capabilities that is so compelling.
Speaker 3: There is show compelling. The third I'd say is areas around just our openness, right? So we are very, we've always had this mindset of
The third I'd say is areas around just sort of openness rates. So we we're very we've always had this mindset of <unk>.
Speaker 3: being very open as a company, providing our customers a lot of choice.
Being very open as a company.
Providing our customers a lot of choice severe LLM agnostic.
Speaker 3: So we are LLM agnostic. We have excellent partnerships with all the major cloud vendors with Azure OpenAI, with Google Vertex AI, with AWS Bedrock. You saw the recent announcement of the Strategic Collaboration Agreement with AWS around Bedrock. And we also support.
Excellent partnerships with all the major cloud vendors with Azure open AI with Google vertex with AWS bedrock you saw the recent announcement of the strategic collaboration agreement with AWS or on bedrock and we also support.
Speaker 3: You know, a lot of the open source, the community LLMs, like Lama II and so on from Metta.
A lot of the open source community Llm's like Lama too and so on for meta.
Speaker 3: And that just means that when somebody uses us, they get a platform that gives them that choice of LLMs, because we don't believe there's going to be one LLM to rule them all in the future. And that choice matters to customers. And then the last thing I'd say is just the incumbency. There's so much, when you talk about all this unstructured, complex, messy data that is so critical, that's what the customers are trying to tap into to build these generative AI applications.
And that just means that when somebody uses us they get a platform that gives them the choice of Llm's, because we don't believe there's going to be one of them to rule them all in the future and that choice matters to customers and then the last thing I'd say is just the incumbency.
So much when you talk about all this unstructured complex messy data that is so critical that's what the customers are trying to tap into to build these generative applications a lot of that data is already sitting in elastic clusters.
Speaker 3: A lot of that data is already sitting in elastic clusters.
Speaker 3: on literally tens of thousands of customers. So for them, it becomes the easy button. They're able to just use our platform, use all that data that they've already ingested in, and now build these GNII applications on top of it. And that sort of makes it a very compelling proposition.
Literally tens of thousands of customers right. So for them it becomes the easy button, they're able to just use our platform use all the data that they've already in yesterday in and now build these gen AI applications on top of it and that you know that sort of makes it a very compelling proposition.
Speaker 2: Super comprehensive, thanks for that. And I guess, obviously it's still early and the acquisition of Splunk hasn't gone through yet, but I'm curious, has there been any initial feedback from customers on what that might mean for existing Splunk customers? And I'm just sort of curious if that's starting to show up at all in any customer conversation.
Super comprehensive thanks for that.
And then I guess, obviously, it's still early in the acquisition of Splunk hasn't gone through yet, but I'm curious.
Has there been any initial feedback from customers on what that might mean for existing customers and just sort of curious if that's starting to show up at all in any customer conversations that you are saying.
Speaker 3: look i think i've said this uh... many times that when it comes to the core markets in observability and security that we plan whether it's log analytics for ability or uh... you know security analytics or sim uh... for security you know in those markets we have very few competitors that operate at our scale and i'm not gonna i'm not gonna talk about you know any one particular competitor but what i will say is that
Look I think I've said this a man.
Any times that when it comes to the core markets and observe ability in security that we play in whether it's log analytics for absurdity or.
Security analytics or Sim for security in those markets. We have very few competitors that operate at our scale and I'm not going to I'm not going to talk about any one particular competitor, but what I will say is that given that we are one of very few our.
Speaker 3: given that we are one of very few, our ability to take share from others by having customers move to our platform, consolidate onto our platform, because we have a more scalable offering, we are really differentiating our offering with generative AI, with the AI assistance that we have built.
<unk> to take share from others by having customers move to our platform consolidated onto our platform because we have a more scalable offering you know we are really differentiating our offering with generative AI with the AI assistance that we have built and probably one of the most exciting things is.
Speaker 3: And probably one of the most exciting things is the elastic search query language, right? ESQL, the uptake and the interest in that has been just absolutely phenomenal because not only is it easy to use, the spiked query language that gives them the ability to iterate over their work.
The elastic search query language E SQL.
The uptake in the interest and that has been just absolutely phenomenal because not only is it easy to use it's despite query language that gives them the ability to iterate over their work and it's making it super easy for customers to migrate off of existing incumbent solutions onto elastic.
Speaker 3: and it's making it super easy for customers to migrate.
Speaker 3: off of existing incumbent solutions onto Elasticse. So everything that's happening in the market right now, we feel is really supporting our ability to continue to have a very strong future. Great.
So everything that's happening in the market right now we feel is a is really supporting our ability to continue to have a very strong future.
Great to hear and also welcome back Anthony.
Speaker 1: The next question is from Cash Rangan with Goldman Sachs. Please go ahead. Excuse me. The next question is from Tyler Rangan.
The next question is from Kash Rangan with Goldman Sachs. Please go ahead.
Excuse me. The next question is from Tyler Radke with Citi. Please go ahead.
Speaker 8: Hi, good afternoon. This is the Twin Tanks coming on for Tyler here. Thanks for taking the question. Congrats on the great quarter. I guess I wanted to drill in a little bit on the top numbers that looked really strong.
Hi, good afternoon, it is between pads coming on for pilots here.
Thanks for taking the question and congrats on a great quarter, I guess I wanted to drill in a little bit on the <unk>.
Numbers that looks really strong.
Speaker 8: that's almost 14 million, like a record high. Is there one time factor that would cause this not to be sustainable going forward? And like kind of how we look at the contribution here is it more the customer consumption easing or kind of more Gen AI use cases that drove that 14 million AR out cloud revenue here.
Almost 14 million like the record high.
One time factors that would cause us not to be sustainable going forward.
Like kind of how we looked at the contribution here is it more the.
Customer consumption ethane are kind of more <unk>.
<unk> used cases that drove that.
$14 million.
Our cloud revenue here.
Speaker 4: Yeah, hi, Echin. Great to talk to you. And as I mentioned earlier, we saw healthy consumption from customers across geographies and across different industry segments. So it was relatively broad based, there was, you know, nothing stand out in terms of one or two customers that caused any kind of distortions.
Yes, hi, each and is a great.
Great to talk to you and as I mentioned earlier, we saw healthy consumption from customers across geographies and across different <unk>.
Industry segments. So it was relatively broad based there was nothing stand out in terms of one or two customers that caused any kind of distortions.
Speaker 4: Overall what it says, optimization trends seem to have stabilized and while customers are so focused on making sure that they get value in terms of their investments, I think they are generally where they want it to be in terms of those optimizations.
Overall, what I'd say is optimization trends seem to have stabilized and while our customers are still focused on making sure that they get value in terms of their investments I think they are generally where they wanted to be in terms of those are those optimizations and so we saw customers ramping their consumption.
Speaker 4: And so we saw customers ramping their consumption. But in terms of Gen AI, we think it's still early days overall for Gen AI workloads, and it'll take time for customers to ramp their usage for Gen AI. But we're quite pleased with the initial contribution to consumption from some of these newer Gen AI workloads. And we do expect that those will continue to grow over time. So as I think about the outlook on consumption, as I've said before, there can be some fluctuations.
But in terms of Jenny I, we think it's still early days overall for Jenny I workloads, and it'll take time for customers to ramp their usage for <unk>, but we are quite pleased with the initial contribution to consumption from some of these newer Jenny I workloads and we do expect that those will continue to grow over time. So you know.
As I think about the outlook on on consumption as I've said before there can be some some fluctuations and as I think about the guide what we simply tried to do is.
Speaker 4: And as I think about the guide, what we simply try to do is...
Speaker 4: balance the strengths that we've seen in execution in the first half against potential broader macro concerns or potential consumption fluctuations that might be out there in the second half. So we feel really good about the back half and and that's the way we've approached it.
Balance the the strength that we've seen in execution in the first half against potential broader macro concerns or or potential consumption fluctuations that might be out there in the second half. So we feel really good about the back half and that's the way we've approached it.
Got it that makes sense I guess.
Speaker 8: Kind of the Gen AI still insignificant to the total, but how, how do you view kind of the new bookings on the consumption in the quarter on that net new front of Gen AI?
Jenny I.
Turning to the total, but how how do you view kind of the new bookings on the consumption in the quarter on that net new client.
<unk>.
Yeah as I said overall, we saw pretty good strength in terms of commitments that customers have made to us.
Speaker 4: Yeah, as I said overall, we saw a pretty good strength in terms of commitments that customers have made to us. That's broad-based. It's for JNAI-specific workloads and Ash provided a couple of examples of those in his prepared remarks and for the more broadly for our overall business as well. So we felt pretty good about that.
It's broad based it's for G&A I specific.
Workloads and Ash provided a couple of examples of those in his prepared remarks and for the more broadly for our overall business as well so we felt pretty good about that.
Makes sense alright, thank you.
Thank you.
Speaker 1: The next question is from Cash Rangan with Goldman Sachs. Please go ahead.
The next question is from Kash Rangan with Goldman Sachs. Please go ahead.
Speaker 9: Hey, thank you so much. Happy holidays and congratulations on the quarter. On this Gen AI thing, I'm curious to get your update thoughts.
Hey, thanks, so much happy holidays.
So in the quarter.
All this <unk> thing.
Thanks.
Curious to get your updated thoughts on.
Speaker 10: on what's the monetization strategy for JNAI? At one level looking at the compelling explanation that you have, it makes elastic more accessible. So it's easy to start to use the system.
How what's the monetization strategy Fortunately one level looking at the the compelling explanation that you have it makes elastic more accessible.
You start to use the system using natural language search so es becomes a lot more accessible.
Speaker 9: So E as well becomes a lot more accessible. R is the market Virginia I opening up brand new use case.
Our.
The market for G&A eye opening up brand new use cases is it one where the accessibility of the platform just gets better so the water division in the Tam becomes easier.
Speaker 9: Is it one where the accessibility of the platform just gets better? So the modernization of the time becomes easier? Or is it that and you use cases that you could not otherwise?
And you use cases that you could not otherwise.
Speaker 9: Target with the existing elastic architecture that opens up or avenues which which the right way to think about what is incremental absurdity and how do you how do you put a price tag on the Azure and MAI effort thank you so much to two questions.
Target with the existing classic architecture.
Pulp is up.
More avenues, which.
The way to think about what does the incremental obsidian how do you how do you put a price tag on here.
Thank you so much.
Okay.
Yes, Kash, thanks for the question and.
Speaker 3: Yeah, Kash, thanks for the question. And let me first address the use cases, and then I'll get to the monetization. So if you think about the use cases, I'd break into two categories. So one is for search. And in the area of search, what we're seeing is generative AI is really broadening the TAM. There are lots of things that were not possible or were not easy in the past.
Let me let me first address the use cases, and then I'll get to the monetization. So if you think about the use cases.
Break into two categories, one is for search and in the area of search what we're seeing is generative AI is really broadening the Tam there.
Lots of things that were not possible or were not easy in the past that now suddenly become both possible and.
Speaker 3: that now suddenly become both possible and relatively capable of implementation. So one example would be video search or image search at scale. That's the kind of stuff that works incredibly well with vector search and hybrid search, but not so much with traditional just lexical search. Another example is the fact that when you think about the kinds of customer service examples or the kinds of customer service use cases.
Relatively.
Capable of implementation. So one example would be video search or image search at scale.
That's the kind of stuff that works incredibly well.
The vector search and hybrid search, but not so much with traditional <unk>.
Lexical search one.
Another example is the fact that you know when you think about that.
The kinds of customer service examples of the kinds of customer service use cases that people are trying to build with <unk>.
Speaker 3: that people are trying to build with GenieI. You know, these are experiences that just would not be possible with just search in the past.
These are experiences that just would not be possible with just search in the past.
Speaker 3: And now with the combination of semantic search and hybrid search, now you can build these...
Now with the combination of semantic search and hybrid search now you can build these conversational kinds of applications to improve the overall search experience and that's driving interest and in the future and even now implementations that we believe are a really really exciting. So it's going to open up the time and the long term how.
Speaker 3: Conversational kinds of applications to improve the overall search experience and that's driving interest and in the future and even now Implementation that we believe are are really really exciting. So it's going to open up the time in the long term How much you know, it's I think TBD? You know, we'll we'll get a better sense as we progress to the quarters in the years
Much.
TBD.
Get a better sense as we progress through the quarters and the years on just how much of an expansion of the search time gets created by this bow wave of generative AI.
Speaker 3: on just how much of an expansion of the search time gets created by this uh... by wave of uh... janitor the i
When you think about security and absorbed already in that area I don't think it's as much of the Tam increasing but rather.
Generative AI and making it easier both for newer types of users to use the elastic platform to solve observed at the end and security use cases.
It also allows us to differentiate our platform a lot better because now we can we can make it easier for customers to use their elastic platform.
You've talked about this we have a very strong focus on just improving the overall usability of our platform and generative I was just making that much better and then in terms of monetization.
I'll remind you is any time you are using as a.
You are fundamentally using the machine learning capabilities in our platform, which R&R paid platinum tier and then our.
AI assistance for absurdity and security are only available at our enterprise tier and also these are these jobs.
Jobs. These machine learning jobs for generative AI, they tend to be a lot more compute intensive. So there are various different vectors for us to monetize the work that we're doing.
Thank you so much again.
For the quarter.
The next question is from Koji Ikeda with Banc of America Securities. Please go ahead.
Hey, guys. Thanks for taking the question.
I wanted to ask a question on Oster acquisition.
Two parts here could you give us a sense of maybe the revenue scale and cash used for the acquisition.
And then a little bit more strategically when looking at the ops or website.
I saw things such as a cluster health visibility and improving the search performance, but I also saw that <unk> helps reduce hardware cost.
It sounds like it could be a little bit cannibalistic in a sense. So how should we be thinking about the long term strategy for ops or from a monetization standpoint.
<unk>, maybe you can take those in reverse order ash, maybe you can touch on the strategy first and then I'll touch on the financials, yeah. So so when you could.
Could you by the way a great question, So I'm Super excited about the op store acquisition.
Like you said, what it what auto ops really lets you do is it lets you both monitor and manage the overall system the cluster and optimize it right make sure that it's running in the best way possible, it's able to reduce and detect issues before they happened so you're able to make sure that you're able to have the CIS.
Stay healthy.
At massive scale, which is very very important for our customers and that's something that drives customer satisfaction. It is something that encourages customers to then do more with our platform and drive more consumption. So it's really a play around consumption to ensure that customers are able to do more without.
That form and keep consuming in a way that is good for them and is good for US now your point about optimizing the hardware look that that is something that we believe is also a key part of our strategy in general because the way. We monetize is you monetize it by having a lot of these capabilities.
And our paid tiers.
And in cloud and through that drives customers to adopt both higher tiers and also to adopt elastic cloud.
And we want our customers to constantly be.
Spending less on infrastructure, but we monetize all of that by having them move to higher tiers because of which their spend on elastic increases. So we believe that it's the Vin. It's a win win for customers. It's a win win for us and that's what makes this such a compelling proposition.
And <unk> in terms of size upstairs, a small but mighty team and in terms of revenue we are not expecting any meaningful revenue contribution from upstairs Ash described the intent is really two fold the <unk> technology into the broader elastic stack and even in terms of expenses. We've just built that into the model that we've already.
He provided.
Got it Super helpful. Thanks, guys. Thanks for taking the question.
Thank you.
Next question is from Rob Owens with Piper Sandler. Please go ahead.
Great. Thanks for taking my question I was hoping you guys could drill down a bit on the security market and specifically Sim applications as we're starting to hear from others of a Sim replacement cycle. Thanks.
Yeah, Hey, thanks for the question, so look our position in security analytics or Sim as you call. It you know it remains very strong so I talked about the fact that in the prepared remarks that we had a lot of success in the quarter and we've seen this in the past several quarters of getting cut.
Mr consolidate onto our platform displacing incumbents and we are we are seeing the benefit of both the capabilities the scale functionality in our platform.
The newer Gen AI functionality to the assistance that we've delivered and it's really helping us compete very very effectively and just the market dynamics seem to be playing in our favor. So we're very excited about it.
And I feel very good about the future.
Alright, thank you.
The next question is from Andrew Nowinski with Wells Fargo. Please go ahead.
Okay. Thank you nice quarter I just want to ask.
More specifically I know, it's only available on that platform and enterprise tiers. So I'm wondering are you seeing customers already upgrading close tiers or any sort of uptick in new logos that are landing with the with those two tiers.
Hey, Andrew So we've generally seen a steady increase in the adoption of our higher tiers over time, particularly on the enterprise tier and we continue to expect that this will help drive growth for elastic cloud looking ahead as.
As I think about all of the additions to the tears and what drives customers to the higher tiers purely a lot of the generative AI functionality.
Is helpful in that regard the security and observe ability AI assistance will only be in the enterprise.
But is it more general matter. We've added features to Ohio subscription tiers over time and done that for example, <unk> platinum, but even beyond that platform level features like searchable snapshots as an enterprise. So that's consistent with our overall strategy to continue to provide more value and then monetize that that.
And the higher tiers, and that's been working quite nicely as I mentioned, we've continued to see a steady increase over time and our adoption of higher tiers.
Okay. Thank you and then I just had a quick question on as it relates to your vectors search I know you've had it for a number of years.
And I.
Salt Lake.
Customers are actually storing their data in elastic data like it makes maybe or vectors search more appealing to them.
Specifically, we feel like a security use case. So I'm wondering are you competing with like a mongo DB.
And.
Vectra search use cases, where theyre looking specifically for vectors there.
Yeah. So look when you think about what it takes to build generative AI applications, you know vector searches.
Component of the overall solution not really the whole solution. So what we see is when you're building a generative applications you need effective connectors to build and bring all of this unstructured data in your environment, you need to be able to provide capabilities like a semantic search and hybrid search.
And re ranking capabilities.
There is need for things like filtering for.
Providing geolocation and often other kinds of personalization capabilities. All of these things that are all about relevance in context that go way beyond just Victor search.
And what we have seen is customers increasingly are looking to our platform because we have that complete breadth of capabilities that makes it possible for them to build a generative applications on one platform now what I will say is that.
Fundamentally in that space, we don't see the database vendors showing up as competition now there might be you know if all of your data isn't a particular database of all of their transactional data as an example is in a particular database and you have some very simple use case, where you just want to search across some of that data and you use.
Zing.
The native basic vector capabilities in that data store, that's that's very likely and Thats frankly.
Customers in a much simpler to use case that we don't really play in that space right. That's very native to that particular platform for us we are going after the much broader market of customers that are trying to build generative AI applications and that requires more than just a vector data store and thats, what we provide soup to nuts.
Thank you.
The next question is from <unk> <unk> with Robert Baird. Please go ahead.
Hey, Thanks for taking my question and congrats on the great execution action as well.
Welcome back Anthony.
So you talked of an evolution in Alaska <unk> go to market strategy before.
Afterwards or more efficient than it was in fact version four for customer engagement and partnerships.
Light of the recent realignment and including the consolidation under the CRO and then today you highlighted generative beginning to positively impact the go to market our own sort of course, you spoke out relationships with major about hyper scalar then and beyond that investment into broadening the global reach our user conference and it kind of.
Talk about which of these factors like the Hyperscale or partnerships user conference directly spreading awareness are bigger drivers currently.
And in terms of the strategic realignment of our go to market.
How are you positioning effectively.
AI landscape at all thanks.
Thanks, a lot.
Sure Nick Thanks for the question what I would say is that look all of the things that we're doing matter right because at the end of the day, our ability to best satisfy our customers comes from the fact that we're able to provide them unique differentiated functionality with the integrations with all the ecosystem partners and.
We have relationships with these ecosystem partners like the cloud Hyperscale is that allow us to reach and service those customers very very effectively and our focus not just on commitments, but also on consumption. All of that is paying off right. So it's about having a very cohesive strategy and I'm very excited about the fact that the team has been.
Executing very well and I'm very proud of the work that they've been doing and we feel really good about both the second half of the year in the future.
Got it thanks a lot.
The next question is from Kingsley Crane with Canaccord. Please go ahead.
Great. Thanks for taking my question congrats on the quarter.
Just want to ask a quick one on cloud great performance this quarter.
As we look at Q4 should we expect there.
Levels of season seasonality versus last year, I think last year was when the cloud cost optimization started in April.
Hey, Kimberly this is Jenny.
I'll take that overall when we look at the approach that we've had we've been had really strong performance in the first half of this year we've.
We've seen customers start to ramp their consumption towards the levels that they had committed and we've continued to see them make strong commitments.
As I mentioned earlier, when I talked about guidance the way we've approached it is simply too.
The fact that it's still an economic environment out there that is stable, but but.
Similar to what it was before and there's room for potential fluctuations and consumption patterns. So we're just trying to make sure that it be balance the strength of our execution that we've seen so far in the first half of the year against any potential risks that might be out there and and again just for abundant clarity, we've not actually <unk>.
Or just anything different yet, but we're just being thoughtful as we as we build our plan for the year.
Makes sense, thanks for the color Dinesh.
Thank you.
The next question is from Mike Chico's with Needham and company. Please go ahead.
Hey, Thank you and you mentioned, if I could just build off.
Kingsley question there.
I know that there have been a number of people who are asking about the guidance construction and what it means for for elastic cloud.
I guess my question said plainly does your guidance currently anticipate the gap between commitments and consumption widening as we get into the second half of this year versus what we've delivered in the second quarter.
I think the answer to that question mathematically you would depend on what level of commitments. We are assuming for Q3, and Q4 and I'm not going to unpack that level of detail.
What we've seen is that consumption is ramping quite nicely. We're doing everything that we can to help customers derive value. It's worked nicely for us over the last few quarters and we will continue to do work hard towards that end for the next couple of quarters and beyond.
Got it and if I could just a quick follow up for <unk>.
For this year, but on the degenerative AI adoption I'd be curious to hear what kind of customers. You are seeing are these more potentially digital natives or mid sized organizations that might be nimbler and the reason I ask is we picked up in our checks that maybe some of the larger enterprises are still running evaluations to understand.
Jen AI how would it work is treat these workflows just given the compute intensity behind them.
Anything incremental on the flavor of customers that are starting to adopt these technologies would be would be really helpful.
Yeah. Thanks for the question we are seeing some.
Excess across the board large customers as well as digital natives and across verticals like I gave at least a.
Two examples in my prepared remarks those are both.
Those were large customers one by one we noted as a doctor sign the other.
Was the video sharing platform.
And what I, what I would say is that generally.
Even the larger organizations one of the reasons why we are having success in.
In those environments is because.
<unk> proven in those environments.
The value of incumbency, the fact that they trust our platform they've been doing all kinds of large scale search applications on our platform in the past and now as they see the functionality and the innovation that we're driving it very.
It's a much faster process for them to get productive and be able to build a generic applications on our platform than other places and we've seen that over and over again, where they might start playing around with.
Some fewer vector database and they quickly realize that they need more than that and they look to our platform and they choose our platform. So I feel really good about it and it's not just about the digital natives, it's actually much broader than that.
Thank you for clarifying and I'll turn it over to my colleagues. Thank you.
This concludes our question and answer session I would like to turn the conference back over to ask Kulkarni for any closing remarks.
Well. Thank you all very much for joining our call today I could not be more excited about the opportunity and our unique position in generative AI as a leading AI powered search analytics platform we have.
Pleased with our strong performance in the first half and confident about the second half of the year. We look forward to updating you on our progress as we go have a great rest of the evening and thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Yeah.