Good day and welcome to the Elastic First Quarter Fiscal 2024 Earnings Results Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Janice Oh with Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Elastic's first quarter fiscal 2024 financial results. On the call we have Ash Kulkarni, Chief Executive Officer; and Janesh Moorjani, Chief Financial Officer and Chief Operating Officer. Following their prepared remarks, we will take questions. Our press release was issued today after the close of market and is posted on our website. Slides, which are supplemental to the call can also be found on the Elastic Investor Relations website at ir.elastic.co. Our discussion will include forward-looking statements, which may include predictions, estimates, our expectations regarding the demand for our products and solutions and our future revenue and other information. These forward-looking statements are based on factors currently known to us, speak only as of the date of this call and are subject to risks and uncertainties that could cause actual results to differ materially. We disclaim any obligation to update or revise these forward-looking statements unless required by law. Please refer to the risks and uncertainties included in the press release that we issued earlier today included in the slides posted on the Investor Relations website and those more fully described in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures. The disclosures regarding non-GAAP measures, including reconciliations with the most comparable GAAP measures can be found in the press release and slides. The webcast replay of this call will be available on our Company website under the Investor Relations link. Our second quarter fiscal 2024 quiet period begins at the close of business on Tuesday, October 17, 2023. On September 5, 2023, we will be participating in the Goldman Sachs Communacopia Technology Conference. With that, I'll turn it over to Ash.

Thank you, Janice. And thank you all for joining us today. I'm pleased with how we performed this quarter. We had a strong start to our fiscal year, with our performance, exceeding our stated expectations across both revenue and non-GAAP operating margin. In Q1, revenue grew 17% year-over-year, with Elastic Cloud growing 24% year-over-year. We ended the quarter with more than 1,190 customers with annual contract values over $100,000. As customers continue to adopt Elastic as their data analytics platform of choice for addressing multiple real-time search use cases. And we continue to manage the business with discipline to deliver non-GAAP operating margin of 9.9%. Elastic has always had a singular mission, enabling everyone to find the answers that matter, from all data in real-time at-scale. The versatility of our platform, the built-in AI capabilities such as the Elasticsearch Relevance Engine or ESRE and our ability to excel at multiple real-time use cases across search, observability, and security on our data analytics platform have all made Elastic a natural choice for our customers as a core element of their IT stack. Our land and expand strategy continues to serve us well and our long-term opportunity remains robust. In Q1, we saw two distinct trends within our business. The first is around generative AI. Generative AI and its intuitive approach to interact with massive amounts of information and generate new content is driving a resurgence of excitement around enterprise search. Businesses are recognizing the opportunity to create new customer and employee experiences and drive efficiencies in various business processes through the use of AI-powered search. This is opening up new opportunities for Elastic. To build generative AI applications that work within their environment and with their proprietary data, businesses need the ability to provide accurate context in real-time to large language…

Thanks, Ash. We are very pleased with the strong results that we delivered in the first quarter, marking an excellent start to the new fiscal year. We once again came in above the high end of our guidance for the quarter for both our topline and our bottom line. In Q1, we delivered 17% year-over-year growth in total revenue with Elastic Cloud yet again driving our results with 24% year-over-year growth. Importantly, we delivered non-GAAP operating margin of 9.9%, demonstrating both our strong investment discipline and the operating leverage inherent in our business model. As Ash mentioned, we saw increased engagement around generative AI use cases in the first quarter, which led to customer dialogue at the highest levels with the C-suite being deeply engaged on the topic. Our advanced capabilities enable customers to build generative AI solutions, leveraging the benefits of our data analytics platform including its native vector database capabilities as they address multiple real-time search use cases. And this positions us exceptionally well to be a leader in generative AI long-term, which we believe will ultimately drive meaningful revenue for us in the coming years. We also saw continued strong contractual commitments during the quarter, particularly among our larger customers as they consolidated use cases on Elastic and benefited from the value of our platform. In addition, we began to see signs of improvement in consumption patterns as customers increase their consumption against the commitments that they had previously made. We will monitor this ramp against the backdrop of broader consumption optimization trends, which still might take a couple of quarters to play out, but we are pleased with the early signs we saw during the quarter. As we look out over the rest of the year, we continue to expect that the compelling value proposition for…

[Operator Instructions] And our first question today comes from Pinjalim Bora with JPMorgan. Please go ahead.

Hi guys, this is [Noah] on for Pinjalim. Thanks for taking our questions. Just curious if you could maybe expand on the performance of both the observability and security practices and how that's stacking up against the competition at this point and I just had a quick follow-up. Thanks.?

Yes, this is Ash here, I can take that. Thanks for that question. So in terms of our ability to compete and differentiate in the market on both observability and security that continues to stay very strong. Just - even in this quarter like I talked about, one of the trends that we're seeing in the business is continued consolidation onto our platform, a lot of those consolidations tend to be around observability and security. The examples that I gave in my prepared remarks were around that. The capabilities that we've been delivering in this area, especially the - some of the newer AI-Assistant functionality for security, what's in beta now and it's an early preview for observability, those are driving a lot of excitement in our customers as they see not just the functionality that we've built, but the way we can help them take advantage of generative AI and do things in a very differentiated manner, really analyze all their data and get insights that other platforms aren't able to give them like that's continuing to play well towards our strengths. So the win rate continues to be very strong and I'm very excited about both these segments for us.

Thanks. And then just a quick second question, it sounded a little bit more incrementally positive around the consumption trends you're seeing so far and totally understand - the understanding that there could be still some fluctuation for the remainder of the year, but how are you sort of thinking about that as you update the guidance for the rest of the year? Thanks.

Yes, I can take that. So, look, the way we think about the guidance for the year, as I mentioned, it's relatively early for us. We are very happy with the momentum that we saw in Q1. The quarter played out nicely for us across the topline, across the bottom line. But as I said earlier, because it's still a little bit early in the year, we think the best thing to do at this stage is just to continue to be prudent. We continue to guide based on what we know and we also continue to build in some protection for the things that we don't know. And although we saw some positive signs of customers ramping here in Q1, it's conceivable that consumption may fluctuate in the near term. So we just think it's best to consider that possibility in our guidance. And that's what we've done here for Q2 and for the full year. And beyond Q2, as I look out to the back half of the year, we don't anticipate any worsening in the second half. We simply want to be measured in our approach to the full year outlook, since it's early in the year. So given the results that we had here in Q1, which were quite strong, we raised the guidance by $4 million on the low end as you saw, because we no longer likely - we no longer see the likelihood that will end at that lower-end of the range. So that's why we raised the bottom end of the range. We're looking forward to Q2 and the rest of the year and we'll update you again on the next call.

Thank you. And our next question today comes from Tyler Radke at Citi. Please go ahead.

Yes, thank you very much for taking the question. Great to hear about the hundreds of customers using the new ESRE product. Could you just talk about the monetization of that? I know there's kind of several ways you can monetize in terms of being on the enterprise and having to turn on some of the ingestion capabilities. But how significant could that be in terms of driving revenue? Would you expect to kind of see the impacts this year or is this more of a next year event? Thank you.

Thanks for the question, Tyler. I can - I'll all address that. So, this is Ash here. So, as you think about our consumption model, the way you should think about it is, as customers use the ESRE functionality, they're doing multiple machine-learning tasks in there. They're effectively taking their data and then turning them into Vector Embeddings, they're storing that data and then using our vector search functionality. They're using things like Reciprocal Rank Fusion for hybrid search, combining that vector search with semantic search and textual search So all of this tends to be - especially the machine-learning stuff tends to be quite compute-intensive. So that is one aspect. The second aspect is for machine learning, you have to be on one of our premium tiers, so either the Platinum or the Enterprise tier. So both of those tend to be ways in which the consumption grows. The second is what I'd say is, as you think about where customers are in this journey, first and foremost, it is beyond exciting, right? So generative AI and the possibility of the kinds of experiences that you are able to deliver to your employees to your customers and to do it in such a way that improves the efficiency of business processes, reduces your cost, this is absolutely a C-Level discussion, the kinds of conversations that we've been having, it's accelerating. It's really driving a resurgence for search in so many different ways and just in the conversations that I'm having with customers, it's becoming very clear that everybody is looking for ways to do this in different domains across their company. Now where they are starting in most cases is with internal facing applications, applications that their employees might be accessing, which gives them a little bit of control over things, allows them to make sure that they really get comfortable with the large language models in the generation functionality, all of these capabilities are relatively new. So that's where we are. As more and more workloads go into production, as the volumes of data in these systems, grows all of that is also going to drive the consumption and the revenue that comes from it. So in terms of the way we are looking at it, the way I look at it, we are very early in the journey. The hundreds of customers that we have today just gives me tremendous confidence and the traction that we're seeing, gives me tremendous confidence in our ability to continue to be a strong leader and to see this become a real tailwind for us in the coming quarters and years. Janesh, I don't know if you want to add anything in terms of how you're looking at this?

No, I'll just reiterate the same level of excitement around the opportunity that you mentioned. When - I hear from customers, our salespeople, folks out there, the level of excitement around gen AI is just tremendous. So I think it's a great long-term potential revenue opportunity for us.

Great. And Janesh, just on the macro environment, it sounded like you saw some encouraging signs of stabilization and improvement. Could you just give us a sense on how the linearity of the quarter played out and have those stabilizing or improving trends continued in August? Just any comment on kind of the timing of when you saw that and obviously, we're not calling the bottom, but just if there a kind of been consistent in August? Thank you.

Yes. Tyler as you know, linearity within the quarter can always be affected by the timing of specific deals and this time was no different. I think we did really well to close the business that was on the table before the end of the quarter. With respect to the consumption patterns that we saw, again, we saw consistency during the quarter. In any given month, we did see some customers go up and down, but looking at consumption trends on a monthly basis, it can be a little bit noisy. But overall, the themes played out as we described in terms of the customers starting to consume nicely against the contracts that they had previously committed to. And in terms of August. I think it's just too early to tell, we haven't even closed August yet, but I will share that the general tone of customer conversations that we've seen has stayed similar to Q1 with a lot of interest in gen AI.

Great. Thank you.

Thank you. And our next question today comes from Koji Ikeda with Bank of America. Please go ahead.

Hi guys, thanks for taking the questions. I wanted to ask a question digging into the Elastic Cloud revenue growth here of 24%. Really strong number there, but when looking at the monthly cloud revenue that grew looks like about low-single digits. And then the net new customer ads the $100,000 ACV, that number was a bit lower than in prior quarters. So just kind of thinking through Elastic Cloud, does that mean that the growth or the strength there is coming from customers below $100,000 or is it customers that are well above $100,000, that's driving that cloud tread, maybe it's a combination of both, just looking for some more color here?

Yes, Koji, there's a couple of elements in there that you talked about in terms of monthly cloud as well as the customer sizes. So let me try and unpack both of those for you. In terms of monthly cloud, the monthly cloud business as you know is predominantly our self-service motion and the majority of that is SMB. That continued to be stable compared to the past couple of quarters. It was not meaningfully different, so neither better nor worse, and that was as we expected. So we anticipated those results. What you're really seeing in the mix there is that our annual cloud subscription motion has actually performed really well. We talked about the increase in consumption that we started to see from the consolidation of workloads and that's all reflected in the annual cloud revenue and then that then drives the mix of revenue So our strategy to focus on customers that have a higher propensity for growth is working quite nicely. We are seeing those customers expand, we are seeing that make larger commitments and I think that's actually been working quite nicely for us. And then if I look at the customer metrics for more than $100,000, again, when I maybe just step back and look at the overall results for the quarter, the overall numbers were really strong for us in terms of both total revenue as well as cloud growth. But in terms of the customer accounts, we saw as Ash, mentioned earlier that customers are continuing to make strong contractual commitments to Elastic, although the additions to that pool of greater than $100,000 ACV was a little bit lighter. We did see strong expansion in the larger accounts and that reflects those commitments. So from a dollar perspective, we saw strength there too, and the number of net-adds in any quarter, it might move around a little bit, but the underlying drivers continue to remain strong and so that's very consistent with the theme of consolidation that we talked about in continuing commitments from these customers, it gives us a lot of confidence in our outlook for Q2 and the rest of the year. So, I think we've had good consistent growth in our customer metrics historically, and we expect that that trend will continue over time.

Got it. Thanks so much, Janesh. And just one follow-up here looking at net revenue retention of 113%. Is it too early to call a potential bottom or how do we - how should we be thinking about visibility into the bottom of net revenue retention going forward?

Yes, the net expansion rate in the first quarter, it moved as we had expected it would. You'll recall that we had covered this on the prior earnings call as well, and we had said that we would expect it to go down. And I think the decline in the net expansion rate reflects the two themes that we had mentioned earlier on commitments and consumption. So for cloud contracts commitments generally don't count towards the net expansion rate, while consumption does. So the strong committees are not in the number, but the slower consumption is. And then over time as the consumption against the committed contracts ramps that will naturally help the net expansion rate over time. If I think about that from a different angle, our gross retention rates remain very strong and we didn't see any change versus the prior quarter. So the slower net expansion rate has been from slower expansion. So as I mentioned as that the consumption against committed contracts ramps, that will naturally help the expansion number. And finally, as you know, the net expansion rate is a lagging indicator, it's a trailing 12-month measure. So as consumption ramps, it will take some time for that to be fully reflected in the net expansion rate. We will continue to monitor that as we go, but so far it's playing out as we had previously predicted.

Super helpful. Thank you so much for taking the questions.

Thank you. And our next question today comes from Jacob Roberge with William Blair. Please go ahead.

Hi, thanks for taking my questions and congrats on the great results. Just going back to those hundreds of paying customers using ESRE in vector search, how would you characterize kind profile of those customers? Are you seeing that more from existing customers kind of upgrading platform SKUs and lifting expansion rates or is that actually starting to drive some new logo activity of - to Elastic as well?

Yes, so we're seeing a mix of both, right? So keep in mind that our motion has always been a land and expand motion. So, new customers come to Elastic typically onto Elastic Cloud using the monthly subscription motion, as they start to use us for new use cases and as they grow, seeing the propensity to grow, we will engage with them and then move them to an annual contract and they sort of continue to expand from there. That motion remains consistent, even in the monthly cloud use cases that we're seeing. We are seeing customers use us for the generative AI use cases that I mentioned. The examples that I gave were all customers using us with annual contract rates in my prepared remarks. And keep in mind that when you think about the value that we bring in the area of generative AI, like what I'm hearing from customers is that really there are four key reasons why we tend to win and why we tend to do very well. First is, we simply have really, really good vector database implementation. It performs very well, it scales incredibly well and that's something that is key to success, and so our customers are appreciating it. The second thing is, we've invested a lot in making sure that we don't just stop at a vector functionality, a vector implementation, but we have invested in capabilities like Reciprocal Rank Fusion for hybrid search. We've invested in functionality that allows you to incorporate context in all the search functionality needed for retrieval augmented generation, using personalization, using geolocation, et cetera, as context. The third big reason is we keep hearing about the fact that the enterprise-class capabilities like document-level permissions, like built-in security that we've implemented is something that is…

Great. That's very helpful. And then when we think about the numbers, when do you think that those apps will actually go-live into production and drive potentially more meaningful consumption of the platform? Do you think that's a Q4 story or more of a fiscal 2025 dynamic? And then on the margin side, are there any incremental AI investments that we should be just thinking about when it comes to modeling?

Yes, so let me maybe touch upon the first question first. In terms, of many of these use cases are already in production, right, so the examples that I gave in my prepared remarks, but even beyond that, there are customers who have spoken publicly together with Elastic on behalf of Elastic, just earlier this week at the Google Next event, Cisco presented with us and talked about the work that they have done on building an internal search application that goes across over 50 internal applications. They had some wonderful stats of what they were able to do in terms of saving hours for their support engineers and making their job a heck of a lot easier and better. So there are lots of production use cases already. I think what's important to understand is, when does this become a big enough customer group that's in-production with data having grown to scale that, this shows up as a major tailwind. And I - we feel very confident that that's going to happen in the coming quarters and years. But discreetly, we are not looking at that as a significant impact for fiscal '24.

Yes, and just to touch on the investments real quick. I mentioned earlier in the prepared remarks that we are increasing some of our investments in gen AI particularly oriented towards marketing and development. And that's all reflected in the operating margin guidance for the full year that I provided. Within that you'll see that if you look at the total spending that was implied in our model for the full year at the start of this year and you compare that to the total spending implied in the guidance in the current guidance that we're providing, it's about the same in the aggregate. So what we're really doing is being efficient and saving in some parts of the business to create room to invest in growth areas like gen AI and that's what you see reflected in the guide.

Great. Thanks for taking my questions and congrats again on the great results.

Thank you.

Thank you. And our next question today comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

Yes, thank you. This is Matt Swanson on for Matt Hedberg and I'll echo my congratulations as well. You know Ash, we kind of focused on two things during the prepared remarks, it was the gen AI and then the consolidation. And I was wondering if you could just talk to maybe how interrelated these two things are now or maybe in the future? Basically, when you're having those C-level conversations, how much this gen AI and things like vector search come up in terms of who they want to consolidate to when they're trying to kind of future-proof these decisions?

That's a great question. And the way I look at it is effectively gen AI and the very differentiated capabilities, we are able to provide is really helping us in a significant way with just brand recognition, with a C-level audience that generally in the past we've not had too many conversations with. And that is a wonderful thing because that then allows us to continue that discussion of the platform story and how there are so many things that, when it comes to real-time search use cases, whether it'd be for observability or security as well, we can add tremendous value to their organization by becoming a key element of their IT infrastructure, and that's really something why I believe that the gen AI tailwind as this builds up in the coming quarters and years is going to be very meaningful for us because it will affect everything that we are able to do with the platform including the work that we do in observability and security.

That's helpful. One other thing you talked about was the time to value being kind of a core value proposition and when thinking about new products or advancements, like the time series data streams and the cost savings for storage, could you just talk about in this macro how important ROI in customer conversations and maybe if that's influencing either product development or the broader go-to-market?

Yes, absolutely, is incredibly important. So we have seen as Janesh mentioned stabilization in sort of the consumption optimizations that we had seen in prior quarters. But the reality is that customers even today care about making sure that they are spending wisely, they are being thoughtful about how they spend, but they want to do it without sacrificing innovation. And that's really the place that we are leaning in with. Our - the value that we offer for our price tends to be incredibly strong. We heard that over and over again. We offer tremendously differentiated capabilities. We allow you to bring in all of your different data types, analyze it in real-time at scale, the performance is fantastic. And the more we do to help you optimize your costs with things like time series data streams, with things like searchable snapshots. Even the improvements that we keep making in the platform itself that allows you to reduce your overall cost, whether it'd be for vector search or something else, like all of these things matter, because that helps them reduce their infrastructure spend on hardware or what they're leasing from cloud providers. And that is incredibly important to them and to be able to do that with a single platform, is just a great value proposition. I've talked about this now for a couple of quarters that we've been leaning into this, both from the product side and the go-to-market side because we see this as an opportunity to take share in the market in this time and we are absolutely doing that. That's what's really driving a lot of the large commitments that we're seeing, because we were able to get a customer to see how they can do more with Elastic and that results in a displacement of some incumbent and over time, that just increases our share.

Thank you.

Thank you. And our next question today comes from Raimo Lenschow with Barclays. Please go ahead.

Hi, thank you. And I might have missed it earlier, but like - can you speak to - if I think about vector search and semantic search, obviously with vector search there is a lot more compute involved than before, like what do you - what are you guys seeing in terms of consumption trends and ad customers are working with it? And what does it mean for you guys in terms of the momentum there, because clearly customer signs one contract and then customer is using them to resources, that it seems to be like a bigger resource consumption that you get from these newer technologies? So could you speak to that please? And I have one follow-up for Janesh.

Yes, sure, Raimo, this is Ash here. I can touch upon that first one. So you're exactly right that when you're dealing with vector search and or even semantic search, really semantic search is all about doing search based on the meaning as opposed to just text and what that requires you to do is to take the data that you have and run it through an ML model and that ML model doing that work is effectively significantly higher in terms of compute than just storing that data But effectively, you have to take all your data, run it through an ML model, create vector embeddings, and then use everything that you've built to then search against whatever that information might be that you're searching for using that semantic information as opposed to just the textual information. And that tends to be much more compute-intensive than traditional textual search. And as you know, for us, it's not just about consumption, but it's also the fact that ML is in a higher paid tier. So you either need Platinum or Enterprise, and that is the second way in which we monetize. So both of those come into the picture for us for either vector search or semantic search and that's really where we're seeing the progress. So like I mentioned, we have hundreds of customers now that are using us for our vector search capabilities and that's really very exciting for us.

Okay. That sounds very exciting. Thank you. And then Janesh, if I think about the evolution on the profitability side, like how do you think about investments, as we think about going kind of maybe - you talked about stabilization on the macro side a little bit, how do you think about like investments into sales and marketing, et cetera? Because lot of these need to be much earlier than kind of the real revenue coming through because people need guys, for example if you go live, et cetera, like how should we think about the progression of investments as we go through this year? Thank you and congrats from me as well.

Yes. Thanks, Raimo. So look, as I look back at Q1, we are very pleased with the operating margin result in the quarter. I think that just reflects the hard work and focus of all of our employees to ensure that we manage the business with discipline and as we've shared before, we have natural operating leverage that's inherent in the model and that was visible here in the Q1 results. We'll continue to grow expenses slower than revenue on a full year basis, as we invest in the business and that will be sufficient to then help us achieve our near-term goal for fiscal '24. But in terms of investments in the business, we entered this year with right amount of selling capacity for this fiscal year and that was a focus area for us a couple of quarters ago as you'll recall. And we continue to selectively invest in enterprise and commercial selling capacity. We're also investing appropriately here against the gen AI opportunity as I mentioned. So we're continuing to make investments throughout the business in areas that we feel are appropriate and that are best-positioned to drive growth the rest of this year and into fiscal '25. We obviously don't want to compromise on topline growth, but it is about ensuring balance growth and profitability and that's what we're committed to doing.

Okay. Perfect. Makes a lot of sense. Thank you.

Thank you.

Thank you. And our next question comes from Andrew Nowinski with Wells Fargo. Please go ahead.

This is Stephen Schwartz for Andy. Thanks for taking my question. I wanted to ask, in terms of the vendor consolidation that you've talked about seeing, is there any commonality among the customers who tend to consolidate with either in terms of size or vertical in geo?

There is no specific trend in any geo. I mean, we've seen that trend playing across multiple kinds of verticals across multiple geo's. What tends to be the typical driver is when these customers are paying extremely high rates for incumbent solutions and then they see what Elastic is able to do, which is not only much more differentiated, much more capable in terms of performance. The kinds of data, we can handle. The kinds of analytics that we can do. The machine-learning functionality that we've built in now with the generative AI capabilities like it just becomes a no-brainer. And usually what is needed is. That inflection point where they see the value they would get and the price that they would get it is meaningful enough that it justifies the effort to do the conversion of the move from their incumbent vendor to us. And that's really the inflection point in the current environment where customers are continuing to be thoughtful and mindful of their spend areas and they want to make sure that they're driving innovation, but also with cost controls and constraints, it's a perfect setup for us.

Got it. Thank you very much and congrats.

Thank you.

Thank you. And our next question today comes from Brent Thill with Jefferies. Please go ahead.

Hi guys, this is Bo Yin on for Brent. Thanks for taking the question. So, I wanted to ask about optimizations and customer behavior. Can you talk about the dynamic between customers focusing on optimizing their near-term consumption, but also bring on more workloads to Elastic to drive TCO saving? Is that increasing workloads being offset by optimization on these workloads or how should we be thinking about these dynamics?

You know it's - this is Ash here. So it's really difficult to sort of tease apart the exact dynamics in any one customer on how these things are moving, but in the aggregate - what I'd say is, what we're seeing is that the majority of customers are generally when it comes to the consumption optimization that people were doing, they're generally where they want to be at this point. It started a few quarters ago as you know, we've talked about it and it's gotten to a point where customers have done all the things that they generally believe that they need to do. Data continues to grow, the kinds of use cases that we play in, tend to be incredibly important. So it's not like they can just walk away from them. And so we see that kind of stabilization in the consumption optimization that people have been doing. At the same time, as we've talked about with you in the last several quarters, we have been leaning in this current environment to really drive consolidation onto our platform, really showcase all the things that customers can do on our platform and that's reflecting - that's resulting in customers bringing newer workloads consolidating multiple things. And those new workloads are also now starting to ramp up. So both those factors are playing in and that sets us up quite nicely as we look ahead.

Thank you.

Thank you. And our next question today comes from Rob Owens with Piper Sandler. Please go ahead.

Hi, thanks for taking my question. This is Ethan on for Rob. I just wanted to ask around how important the channel is, when it comes to selling these - selling ESRE and gen AI functionality? Especially if you think about you going into these really large organizations and when the fees we get evolve? Thank you.

Yes, so the channel tends to be important, but keep in mind that for newer areas like this, the reality is that these are areas where we tend to have direct conversations with these customers and the channel can often help us broker some of those conversations. But it's we tend to be the experts, so we tend to have a lot of these conversations. Where the relationships - the partner relationships really become wonderfully important and are helping us, is the relationships we have with the cloud hyperscalers. As you saw from some of the accolades that we won that we talked about in this earnings call. We have - our relationship with Google, with Microsoft, with AWS, they are strong and they're continuing to grow stronger. And that just means that when customers are talking to them, it allows us to go and jointly with these partners and have these kinds of conversations, where customers are looking to do things there are on the leading edge. And those are the relationships that we believe are really critical at this phase, and that's where we have a lot of strength. So I'm excited about that.

Thank you.

Thank you. And our next question comes from Kingsley Crane at Canaccord. Please go ahead.

Hi, thanks for taking my question. I wanted to talk through consolidation wins. Are these picking up for you? And then how often is the case that logging is leading in consolidation motion? And then, how often would you see a customer potentially adopt APM during this process?

The consolidation trend has definitely been strong in the last couple of quarters, like we've talked about. And a lot of it, in my opinion, has to do with the fact that as people have - as CIOs and companies have become more thoughtful about their spend envelopes. They are looking to see where they can save and we have a value proposition that allows them to do that, while at the same time doing even more and getting the kinds of innovative technology that we've been bringing out in market. So it's working very nicely in our favor. Now what we typically tend to lead with, like we've talked about in the past, tends to be Log Analytics, tends to be Security Analytics, and tends to be Search. And then we progress from there, right? So we have lots and lots of customers now that are using us. Thousands of customers that are using us for APM. And that's all - many of those customers started with us with logs, to begin with, and then they moved from logs and realized that they could get a much better picture of their overall observability landscape by not just bringing logs into Elastic but also bringing APM traces and then they eventually will bring on metrics and other things deal user metrics and so on. And that's the pattern that we see over and over again. So the consolidation pattern tends to be one where we might start with Log Analytics and Security Analytics and Search, but then will invariably, go onto other elements of observability and other elements of security and so on.

Great. Thank you, Ash. And then one brief follow up for Janesh, if I may. It makes sense to be prudent on the guidance, but could you walk us through how consumption has trended month-by-month-in Q1 and then how does that fare so far in August?

Hi, Kingsley, as I've mentioned a little bit earlier, I think it can vary from month to month. There is always going to be a little bit of noise in the monthly data. And so what we generally saw was consistency through the course of the quarter. And, overall, I think the themes just played out as we described over the course of Q1 and then specifically for August, as I mentioned, we aren't done with August yet, so hard for me to talk about that, but. I will share that the general tone of customer conversations was similar to where it was in Q1.

Okay. Thank you.

Thank you. And today's last question comes from Shrenik Kothari with Baird. Please go ahead.

Hi, thanks for taking my question. Great quarter. Congrats. So since you touched upon the annual cloud subscription motion performing quite well, Ash, and highlighted some of the prominent organizations, the Fortune 100 and the leading share service, leveraging our capabilities. So it appears that your sea-level engagement strategy and to your earlier point on the hyperscaler partnerships working quite well. But then, I think Janesh also mentioned that the net adds to the [100,000] was a bit lighter. So just if you guys can kind of help reconcile and help perhaps unpack like how much of the businesses is currently being driven by this top down or enterprise-focused motion that you guys are strategically kind of moving towards that you highlighted few quarters back and then I have a quick follow-up?

Yes, I'll just touch on that real quick in the interest of time. We've continued to see strong contractual commitments to Elastic and we saw that here in Q1. It continued to trend. We've seen for a few quarters now. So overall, I'd say, our investments in the enterprise selling motion and everything we bring to that including the partnerships and so forth that you touched on - I think that's actually working quite nicely. Keep in mind that in our land and expand motion, the initial lands tend to be very small and then we tend to expand with customers over time. And so within that pool of over 100,000 customers that you mentioned, although the number of additions was a bit lower, we did see a very strong expansion in the larger accounts and it reflects those commitments. So we felt very good about how this all played out. And I do expect that we will have consistent growth in our customer metrics over time. It's been good - a good driver for us in the past and I do expect that trend will continue over time.

Got it. Thanks a lot, Janesh. And just very quickly, I mean, I know there was earlier question around consolidation correlation with multiple use cases, including gen AI. I was just wondering like, are you also seeing kind of direct correlation with this kind of enterprise focus top down motion and consolidation as well? And are you guys kind of going about in a strategical fashion, not just like as I said, targeting industries or verticals, but just kind of in terms of kind of larger commitments and trying to target accordingly?

Yes. I mean, so - like we've talked about, right in prior calls as well, our focus on enterprise selling has been strong and we've talked about the fact that we've been very strategically focusing on customers that have a greater propensity to grow with us. And that includes customers in the Enterprise segment, that includes customers in the Commercial segment. And one of the levers that we have been really focused on is our ability to deliver highly differentiated value at an incredible price for our customers because of the strength of our platform and its ability to deliver on multiple real-time search use cases, whether it be for search observability or security incredibly well. And so we've been leaning into that as a motion, irrespective of vertical and geography. So we've been driving that motion with our sales organization and it's paying off. It's paying off in larger commitments. It's paying off in more workloads coming onto our platform and that's taking share and it's reflecting now in some of the benefits that we're seeing in revenue.

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Ash Kulkarni for any closing remarks.

All right. Thank you all very much for joining our call today. We had a strong start to our fiscal year and I'm really excited about the opportunity and our position in the market as the leading AI-powered data analytics platform for multiple real-time search use cases. We will be hosting our Elastic on AI Conference in San Francisco in a few weeks, and I am looking forward to seeing our customers there as we talk about all the exciting things we are doing in this space. Have a great rest of the evening. Thank you.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.