Elastic (NYSE:ESTC) FY Conference January 14, 2026 01:30 PM ET Company ParticipantsEric Prengel - Global VP of FinanceConference Call ParticipantsMike Cikos - Senior AnalystMike CikosMy name is Mike Cikos. I'm the Lead Analyst here covering cybersecurity and infrastructure software. Pleased to say we have with us Elastic. I'm joined up here on the stage for a fireside chat with GVP of Finance, Eric Prengel. We'll go through some questions we have planned on our side, but please, we'd love this to be interac ...

Financial Data and Key Metrics Changes - The company reported total revenue of $423 million for Q2, representing a growth of 16% year-over-year and 15% on a constant currency basis [24] - Sales-led subscription revenue was $349 million, growing 18% as reported and 17% on a constant currency basis [24] - The current remaining performance obligation (CRPO) was approximately $971 million, growing 17% as reported and 15% in constant currency [25] - Subscription gross margins were 82%, total gross margins were 78%, and operating margin was 16.5% [28] - Adjusted free cash flow was approximately $26 million, representing a margin of 6% [29] Business Line Data and Key Metrics Changes - The company saw strong execution in sales-led subscription revenue, with a notable increase in large commitments, including over 30 commitments greater than $1 million in annual contract value [24][26] - The number of customers spending over $100,000 annually grew to more than 1,600, with 23% of this cohort utilizing Elastic for GenAI use cases, up from 17% a year ago [27][33] Market Data and Key Metrics Changes - The company experienced broad-based demand across all geographies, supported by healthy consumption trends [23] - Despite a government shutdown impacting some renewals, the company closed significant deals, including a $26 million commitment with CISA [26][29] Company Strategy and Development Direction - The company is focused on leveraging its AI capabilities across all business areas, with a strong emphasis on security and observability [6][10] - The introduction of new products like Agent Builder aims to enhance the company's offerings in AI and context engineering [15][19] - The company is committed to innovation and strategic acquisitions, such as the acquisition of Jina AI, to strengthen its position in the AI and search markets [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, citing strong consumption and commitment trends [23][38] - The company raised its full fiscal year 2026 revenue guidance, expecting total revenue in the range of $1.715 billion to $1.721 billion, representing approximately 16% growth at the midpoint [32] - Management highlighted the importance of both cloud and self-managed environments in driving sales-led subscription revenue [30][31] Other Important Information - The company plans to return approximately $500 million to shareholders through a share repurchase program, having already returned $114 million in Q2 [29] - The company will participate in upcoming conferences, including the Barclays Global Technology Conference and the Needham Growth Conference [5] Q&A Session Summary Question: Performance of non-AI-native customers - Management noted strong consumption trends across all customer segments, including traditional businesses, driven by increased commitments and consolidation onto the platform [36][38] Question: Billings lagging behind other metrics - Management explained that seasonality and a government shutdown impacted billings, but overall commitments and consumption remained strong [40][42] Question: Composition of sales-led subscription revenue guidance - Management clarified that the guidance reflects commitments from both cloud and self-managed environments, with expectations for flat growth in the self-serve segment [49][50] Question: Growth opportunities outside of RAG - Management emphasized that relevance and context engineering are core strengths, and new products like Agent Builder will help monetize these capabilities [66] Question: Competitive landscape in security - Management indicated that the company is successfully displacing incumbents in the security space, leveraging its data platform and AI capabilities [85][90]

Financial Data and Key Metrics Changes - The company reported total revenue of $423 million for Q2, representing a growth of 16% year-over-year and 15% on a constant currency basis [24] - Sales-led subscription revenue was $349 million, growing 18% as reported and 17% on a constant currency basis [24] - The current remaining performance obligation (CRPO) was approximately $971 million, growing 17% as reported and 15% in constant currency [25] - Subscription gross margins were 82%, total gross margins were 78%, and operating margin was 16.5% [28] - Adjusted free cash flow was approximately $26 million, representing a margin of 6% [29] Business Line Data and Key Metrics Changes - The company saw strong execution in sales-led subscription revenue, with a notable increase in large commitments, including over 30 commitments greater than $1 million in annual contract value [24][26] - The number of customers spending over $100,000 annually grew to more than 1,600, with 23% of this cohort utilizing Elastic for GenAI use cases, up from 17% a year ago [27][33] Market Data and Key Metrics Changes - The company experienced broad-based demand across all geographies, supported by healthy consumption trends [23] - Despite a government shutdown impacting some renewals, the company closed significant deals, including a $26 million commitment with CISA [26][29] Company Strategy and Development Direction - The company is focusing on AI and platform consolidation as top priorities for enterprises, which is driving sustained momentum in demand [23] - The introduction of new products like Agent Builder aims to enhance the company's capabilities in AI and context engineering, further differentiating its offerings [15][19] - The acquisition of Jina AI is expected to accelerate the company's strategy in AI and vector search [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's momentum, citing strong consumption and commitments as key drivers for future growth [38][41] - The company raised its full fiscal year 2026 revenue guidance, expecting total revenue in the range of $1.715 billion to $1.721 billion, representing approximately 16% growth at the midpoint [32] Other Important Information - The company initiated a $500 million share repurchase program, returning approximately $114 million in cash to shareholders during Q2 [29] - The company plans to participate in upcoming conferences, including the Barclays Global Technology Conference and the Needham Growth Conference [5] Q&A Session Summary Question: Performance of non-AI-native customers - Management noted strong consumption trends across all customer segments, including traditional businesses, driven by increased commitments and consolidation onto the platform [36] Question: Billings lagging behind other metrics - Management explained that seasonality and a government shutdown impacted renewals, but overall commitments and consumption remained strong [40][42] Question: Composition of sales-led subscription revenue guidance - Management clarified that the guidance focuses on commitments from both cloud and self-managed environments, with expectations for flat growth in the self-serve segment [49] Question: Growth in GenAI revenue contributions - Management emphasized that consumption growth is driven by various factors, including new workloads and platform efficiency, rather than pricing alone [53][56] Question: Competitive landscape in security - Management highlighted that the company is successfully displacing incumbents in the security space, leveraging its data platform and AI capabilities [85][90]

Financial Data and Key Metrics Changes - Total revenue for Q2 was $423 million, representing a growth of 16% year-over-year and 15% on a constant currency basis [21] - Sales-led subscription revenue was $349 million, growing 18% as reported and 17% in constant currency [21] - Current remaining performance obligation (CRPO) was approximately $971 million, growing 17% as reported and 15% in constant currency [22] - Subscription gross margins were 82%, total gross margins were 78%, and operating margin was 16.5% [24] - Adjusted free cash flow was approximately $26 million in Q2, representing a margin of 6% [25] Business Line Data and Key Metrics Changes - Strong execution in sales-led subscription revenue growth of 18%, with significant contributions from both Elastic Cloud and self-managed offerings [5][21] - Over 30 commitments greater than $1 million in annual contract value were secured, with five exceeding $10 million [23] - The number of customers spending over $100,000 annually increased to more than 1,600 [5] Market Data and Key Metrics Changes - The company saw a 13% increase in the number of customers with annual contract values over $100,000, indicating strong market demand [23] - 23% of customers in the greater than $100,000 cohort are utilizing Elastic for GenAI use cases, up from 17% a year ago [24] Company Strategy and Development Direction - The company is focusing on AI and platform consolidation as top priorities for enterprises, driving demand for its solutions [20] - The introduction of new products like Agent Builder aims to enhance user interaction with data and simplify the operational lifecycle of AI agents [13] - The acquisition of Jina AI is part of the strategy to enhance capabilities in multilingual and multimodal embedding and re-ranking models [16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the market opportunity, driven by robust growth and a unique platform built for the AI era [19] - The company raised its full fiscal year 2026 revenue guidance, expecting total revenue in the range of $1.715 billion to $1.721 billion, representing approximately 16% growth [28] - Management noted that the business is seeing strong commitments and consumption, with a healthy sales pipeline [20][29] Other Important Information - The company initiated a $500 million share repurchase program, returning approximately $114 million in cash to shareholders during Q2 [25] - The company will begin providing guidance for sales-led subscription revenue, a key metric for measuring success with larger strategic accounts [26] Q&A Session Summary Question: Performance of non-AI-native customers - Management noted strong consumption trends across all customer segments, including traditional businesses, driven by increased commitments and consolidation onto the platform [30][31] Question: Billings lagging behind other metrics - Management acknowledged variability in billings due to seasonality and a government shutdown impacting renewals, but emphasized strong commitments and consumption [32][33][34] Question: Composition of sales-led subscription revenue guidance - Management clarified that the guidance focuses on commitments from both cloud and self-managed environments, with expectations for flat growth in self-serve monthly cloud [36][37] Question: Growth contributions from GenAI revenue - Management emphasized that consumption growth is driven by new workloads and increased data, rather than pricing changes alone [38][39][40] Question: Go-to-market changes and productivity - Management confirmed that changes made to the sales strategy are yielding positive results, with strong execution and commitments [41][42] Question: Competitive landscape in security - Management highlighted that the company is displacing incumbents in the security space, leveraging its data platform and AI capabilities [53][54][55] Question: Observability and security as two sides of the same coin - Management reiterated the importance of data in both observability and security, emphasizing the company's advanced capabilities in these areas [57][58]