Elastic Eliminates Per-Endpoint Pricing for XDR Mar 23, 2026 12:09 PM Eastern Daylight Time Elastic Eliminates Per-Endpoint Pricing for XDR Share Elastic Security ends the "endpoint tax† "Organizations shouldn'4t have to decide which systems are worth protecting, and with AI drastically evolving the threat landscape, they can'€ afford to, †said Mike Nichols, general manager of Security at Elastic. "Per-endpoint pricing turns coverage into a budget decision. We don't believe in that at Elastic. We've built t ...

Elastic Eliminates the SOAR Automation Tax with Native Workflows Elastic Eliminates the SOAR Automation Tax with Native Workflows Share Elastic Workflows brings native automation directly into Elastic Security with no separate SOAR tool required SAN FRANCISCO--(BUSINESS WIRE)--Elastic (NYSE: ESTC), the Search AI Company, announced that Elastic Workflows, a native automation capability with direct access to alerts, cases, and investigation data, is now built directly into Elastic Security. By bringing native ...

Core Insights - The current market environment is characterized by investor debates regarding the durability of software companies in the AI sector [1] - Companies are encouraged to return to fundamental principles when evaluating software firms [1] Company Overview - Elastic is positioned as a data platform that provides essential context for large language models to perform their tasks effectively [2] - The company emphasizes its relevance in the AI context by facilitating the necessary data for AI applications [2]

Summary of Elastic (NYSE:ESTC) 2026 Conference Call Company Overview - **Company**: Elastic (NYSE:ESTC) - **Event**: Morgan Stanley TMT Conference - **Date**: March 02, 2026 - **Speakers**: CEO Ash Kulkarni, CFO Navam Welihinda Key Points Industry Context - The current market is focused on the impact of AI on software companies, with investors assessing which companies will remain durable in the AI era [4][10] Core Value Proposition - Elastic positions itself as a data platform that provides context to large language models (LLMs), emphasizing the need to bring models to data rather than moving data to models [5][9] - The company highlights its ability to deliver specific data relevance and context for various AI use cases [9] Financial Performance - **Sales-led subscription revenue growth**: Accelerated to 19% from 17% in the previous quarter [10] - **Operating income**: Remains strong, with a record number of million-dollar deals reported [12] - **AI adoption**: Approximately 25% of the 100K customer cohort is now using Elastic for AI applications [14] Market Trends - There is a growing interest in self-managed environments, particularly in regulated industries where data sensitivity is paramount [14][16] - The demand for running technologies in sovereign environments is increasing in Europe [16] Competitive Advantage - Elastic's ability to offer a comprehensive platform that can be deployed both in cloud and self-managed environments is seen as a significant advantage over competitors [17] - The company emphasizes the importance of its data store and context accuracy as its defensible moat against competitors [34] AI Integration and Growth - Elastic is experiencing increased consumption from AI workloads, with a quantified difference of approximately 6% in consumption between AI users and non-users [51][53] - The company anticipates that AI will serve as a tailwind for growth, with midterm targets set to exceed 20% sales-led subscription revenue growth by fiscal 2029 [57][58] Observability and Security - The observability business is growing, particularly in metrics, which has historically been a weaker area for Elastic [75][80] - The company is developing specialized backend stores to improve performance in observability, expected to launch mid-year [80] Capital Allocation Strategy - Elastic maintains a disciplined approach to stock-based compensation while investing in sales and marketing capacity [92][93] - The company has allocated over 50% of its capital for share repurchases as part of its strategy to return value to shareholders [97] Future Outlook - Elastic expects steady growth rather than a sudden inflection, focusing on long-term market share and efficiency improvements [88][89] - The company is committed to evolving its platform to meet the changing demands of AI and data management [46][67] Additional Insights - Context engineering is defined as the processes and capabilities needed to provide LLMs with accurate context, which Elastic aims to excel in [67][68] - The shift from human to AI interfaces is anticipated to change how data platforms operate, with a focus on APIs over traditional UIs [46][68]

Core Insights - Generative AI is viewed as a transformative technology by Amazon's CEO Andy Jassy, indicating its potential to significantly enhance customer experiences across the company [1] - Elon Musk predicts that by 2040, humanoid robots could create a market worth $250 trillion, representing a major shift in the global economy driven by AI innovation [2][3] - Major firms like PwC and McKinsey acknowledge the multi-trillion-dollar potential of AI, suggesting a broad consensus on its economic impact [3] Company and Industry Developments - A breakthrough in AI technology is believed to be redefining work, learning, and creativity, attracting significant interest from hedge funds and top investors [4] - There is speculation about an under-owned company that may play a crucial role in the AI revolution, with its technology posing a threat to competitors [4][6] - Prominent figures in technology and investment, including Bill Gates and Warren Buffett, recognize AI as a major technological advancement with the potential for substantial social benefits [8] Market Predictions - The anticipated value of AI technology by 2040 is projected to be $250 trillion, which could reshape business, government, and consumer operations globally [2] - The narrative suggests that investors may soon regret not owning shares in a specific AI company that is positioned to capitalize on this technological wave [9]

Core Viewpoint - Oppenheimer has lowered the price target for Elastic (ESTC) to $85 from $100 while maintaining an Outperform rating on the shares, indicating a positive outlook despite the price adjustment [1] Financial Performance - Elastic reported solid Q3 results, demonstrating strong performance and broad-based demand [1] - The company raised its FY26 guidance, reflecting steady commitments and consumption [1] Future Outlook - Oppenheimer considers the Q4 guidance to be conservative, suggesting potential for upside in the future [1]

Core Insights - Elastic N.V. reported third-quarter results that surpassed analyst expectations, but shares fell over 15% intra-day due to concerns about the fourth-quarter outlook [1] Group 1: Financial Performance - The company posted adjusted earnings per share of $0.73, exceeding the consensus estimate of $0.65 by $0.08 [1] - Revenue increased by 18% year-over-year to $450 million, surpassing analyst expectations of $438.38 million [1] - Subscription revenue rose by 19% to $426 million, while sales-led subscription revenue advanced by 21% to $376 million [2] Group 2: Future Projections - For the fourth quarter of fiscal 2026, Elastic forecasts revenue between $445 million and $447 million, with a midpoint of $446 million indicating 15% year-over-year growth [2] - Adjusted earnings per share for the fourth quarter are projected to be between $0.55 and $0.57 [2] - For the full fiscal 2026, the company expects revenue between $1.734 billion and $1.736 billion, slightly above the $1.72 billion consensus estimate [3] Group 3: Customer Metrics - Elastic's customer base with annual contract value above $100,000 grew to over 1,660, up from over 1,460 in the prior-year quarter [3] - The net expansion rate was approximately 112% [3]

Revenue Performance - Subscription revenue accounted for 94% and 93% of total revenue for the nine months ended January 31, 2026 and 2025, respectively [128]. - Total revenue for the three months ended January 31, 2026, was $449.9 million, an increase of $67.8 million or 18% compared to $382.1 million in the same period of 2025 [163]. - Subscription revenue increased by $67.5 million, or 19%, for the three months ended January 31, 2026, driven by a 21% growth in Elastic Cloud and a 16% growth in Other subscriptions [163]. - Subscription revenue increased by $189.2 million, or 19%, for the nine months ended January 31, 2026, driven by a 22% growth in Elastic Cloud revenue [174]. - Total revenue for the nine months ended January 31, 2026, was $1,094.9 million, a decrease of $193.8 million, or 18%, compared to the prior year [174]. Customer Metrics - The number of customers with annual contract value over $100,000 increased to over 1,660 as of January 31, 2026, up from over 1,460 in 2025 [130]. - The Net Expansion Rate was approximately 112% as of January 31, 2026, indicating growth in customer spending [142]. Gross Profit and Margins - Gross profit for the three months ended January 31, 2026, was $343.4 million, resulting in a gross margin of 76%, compared to a gross margin of 75% in the same period of 2025 [158][161]. - Gross profit for the nine months ended January 31, 2026, was $983.4 million, representing a 21% increase from $812.8 million in the prior year [176]. - Subscription gross margin improved to 81% for the nine months ended January 31, 2026, compared to 79% in the prior year, due to efficiencies in managing cloud infrastructure costs [176]. Expenses - Research and development expenses for the three months ended January 31, 2026, were $114.4 million, an increase from $93.6 million in the same period of 2025 [158]. - Sales and marketing expenses for the three months ended January 31, 2026, were $176.8 million, up from $153.7 million in the same period of 2025 [158]. - General and administrative expenses for the three months ended January 31, 2026, were $51.6 million, compared to $42.2 million in the same period of 2025 [158]. - Research and development expenses increased by $60.6 million, or 22%, for the nine months ended January 31, 2026, primarily due to a $45.2 million increase in personnel costs [178]. - Sales and marketing expenses rose by $69.0 million, or 15%, for the nine months ended January 31, 2026, mainly due to a $53.7 million increase in personnel costs [179]. - General and administrative expenses increased by $15.4 million, or 12%, for the nine months ended January 31, 2026, primarily driven by a $14.6 million rise in personnel costs [180]. Income and Tax - Operating income for the three months ended January 31, 2026, was $611, a significant improvement from a loss of $4.6 million in the same period of 2025 [158]. - Net income for the three months ended January 31, 2026, was $7.8 million, compared to a net loss of $17.1 million in the same period of 2025 [158]. - The effective tax rate was influenced by various factors, including non-deductible stock-based compensation and one-time tax benefits, resulting in a benefit from income taxes of $1.6 million for the three months ended January 31, 2026 [157]. - The effective tax rate for the three months ended January 31, 2026, was (26)%, compared to 519% for the same period in the prior year, reflecting a significant change in tax provisions [172]. - Provision for income taxes rose by $10.7 million, or 17%, for the nine months ended January 31, 2026, with an effective tax rate not meaningful due to near break-even net income before taxes [185]. Cash Flow and Financial Position - As of January 31, 2026, the company had cash, cash equivalents, and marketable securities totaling $1.248 billion, consisting of highly liquid investment-grade fixed-income securities [188]. - The accumulated deficit stood at $1.168 billion as of January 31, 2026, reflecting significant operating losses [189]. - Net cash provided by operating activities was $174.2 million for the nine months ended January 31, 2026, resulting from non-cash charges of $378.0 million and a net loss of $68.1 million [197]. - Net cash provided by investing activities was $121.7 million for the nine months ended January 31, 2026, primarily due to sales and maturities of marketable securities totaling $523.7 million [199]. - Net cash used in financing activities was $287.1 million for the nine months ended January 31, 2026, mainly due to repurchases of ordinary shares totaling $300.1 million [201]. - The company authorized a Share Repurchase Program for up to $500.0 million, with $200.0 million remaining available for future repurchases as of January 31, 2026 [194][195]. Market Conditions - Recent macroeconomic conditions may lead to longer sales cycles and increased scrutiny of prospective sales, impacting overall customer expenditures [133]. - The company expects that the increase in Elastic Cloud's contribution to subscription revenue will continue to have a modest adverse impact on gross margin due to third-party hosting costs [144]. - The company plans to continue investing in developing new features for its platform to drive growth, which may impact operating results in the short term [137]. Other Income and Charges - Other income, net decreased by $3.4 million, or 22%, for the three months ended January 31, 2026, primarily due to increased foreign currency exchange losses [171]. - Other income, net increased by $7.9 million, or 22%, for the nine months ended January 31, 2026, driven by a $6.8 million increase in interest and investment income and a $1.3 million gain in foreign currency exchange [184]. - Restructuring and related charges decreased by $0.2 million for the nine months ended January 31, 2026, compared to the prior year, with no employee-related severance charges recorded [182]. - Foreign currency transaction losses were $2.3 million for the nine months ended January 31, 2026, compared to $1.5 million for the same period in 2025 [208].

Core Insights - Elastic (ESTC) reported revenue of $449.88 million for the quarter ended January 2026, reflecting a year-over-year increase of 17.8% and surpassing the Zacks Consensus Estimate of $438.15 million by 2.68% [1] - The company's earnings per share (EPS) was $0.73, an increase from $0.63 in the same quarter last year, resulting in an EPS surprise of 13.67% compared to the consensus estimate of $0.64 [1] Revenue Breakdown - Subscription revenue reached $425.73 million, exceeding the average estimate of $412.58 million by nine analysts, marking an 18.9% increase year-over-year [4] - Service revenue was reported at $24.15 million, slightly below the average estimate of $24.66 million, with a year-over-year change of 1.1% [4] - Elastic Cloud subscription revenue was $218.49 million, surpassing the estimated $216.19 million, representing a 21.4% increase from the previous year [4] - Other subscription revenue amounted to $207.24 million, exceeding the average estimate of $196.22 million, with a year-over-year change of 16.3% [4] - Annual Elastic Cloud subscription revenue was $168.56 million, slightly above the estimated $167.54 million, while monthly Elastic Cloud subscription revenue was $49.92 million, exceeding the average estimate of $48.78 million [4] Stock Performance - Over the past month, Elastic's shares have declined by 21%, contrasting with a 0.6% increase in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

Financial Data and Key Metrics Changes - Total revenue for Q3 was $450 million, representing an 18% growth year-over-year and 16% on a constant currency basis [24][25] - Sales-led subscription revenue grew to $376 million, an increase of 21% as reported and 19% on a constant currency basis [25] - Current remaining performance obligations (CRPO) reached approximately $1.06 billion, growing 19% as reported and 15% on a constant currency basis [25][26] - Non-GAAP operating margin was 18.6%, with subscription gross margins at 82% and total gross margins at 78% [28][29] Business Line Data and Key Metrics Changes - Sales-led subscription revenue accelerated, with a notable increase in commitments from both self-managed and cloud offerings [25][27] - The number of customers with an annual contract value (ACV) over $100,000 grew to over 1,660, marking a 14% increase [26] - 28% of customers in the greater than $100K cohort are utilizing Elastic for AI, indicating strong demand for AI capabilities [27] Market Data and Key Metrics Changes - The company experienced strong deal momentum across all geographies, with multi-year commitments indicating customer confidence in the Elastic platform [26] - The demand for AI solutions is driving customer expansion, with significant growth in AI-related use cases [27][86] Company Strategy and Development Direction - The company is focused on becoming a critical data platform in the age of AI, leveraging its capabilities to support both cloud and self-managed environments [24][27] - The introduction of new features like Agent Builder and Elastic Workflows aims to enhance the platform's capabilities for context-driven AI applications [19][22] - The strategy emphasizes bridging the gap between LLMs and proprietary data, positioning Elastic as a leader in context engineering for AI applications [13][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing market demand and the company's ability to drive profitable growth, with expectations for continued strong performance in the upcoming quarters [29][34] - The company anticipates total revenue for fiscal 2026 to be in the range of $1.734 billion to $1.736 billion, representing approximately 17% growth at the midpoint [32] - Management highlighted the importance of AI adoption among customers, suggesting that as more customers reach the $100K ACV mark, growth could accelerate [40][75] Other Important Information - The company has made significant progress on its $500 million share repurchase program, returning approximately $186 million to shareholders during Q3 [30] - The introduction of the Elasticsearch GPU plugin aims to enhance AI application deployment speed and efficiency [18] Q&A Session Summary Question: Insights on AI customer growth and potential acceleration - Management noted that trends for generative AI customers remain strong, with potential for accelerated growth as more customers reach the $100K mark [39][40] Question: Importance of context in AI applications - The CEO emphasized the need for a comprehensive data platform that can handle various data types and provide accurate context for AI applications [42][43] Question: Performance of self-managed versus cloud customers - Management highlighted the strength in self-managed business, particularly as customers prefer to keep sensitive data within their control [48][49] Question: Future competition from frontier models - The CEO stated that AI models will not displace Elastic but rather depend on it for providing the necessary context for effective AI applications [56][57] Question: Impact of recent CISA win on government contracts - Management confirmed that the CISA win is expected to lead to additional agency engagements, enhancing the company's position in the government sector [68] Question: Concerns about CRPO growth rates - Management reassured that CRPO growth is strong, with expectations for continued improvement as AI adoption increases among customers [73][75]