Core Insights - Elastic announced a new integration for Amazon Bedrock AgentCore, enhancing observability for AI agents and applications within the Elasticsearch platform [1] - This integration enables site reliability engineers (SREs) and developers to monitor, optimize, and troubleshoot agents operating on Amazon Bedrock AgentCore [1] - Elastic Observability facilitates monitoring by ingesting all logs and metric signals related to AI agents and applications [1]

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]

Business Overview and Growth - Elasticsearch is the world's most popular open-source data platform for unstructured data, evidenced by 55 billion downloads and ranking as the 1 search engine and VectorDB[10, 11] - Elastic's total revenue has grown consistently, reaching $1483 million in FY25, with a year-over-year growth of 17%[16] - The company is targeting a $296 billion total addressable market (TAM) by 2029, driven by Search, Security, Observability, and GenAI[52] AI and Technology - Elastic has a strong foundation for AI, with 15 years of development in native vector search and AI workloads[22, 23] - The Elasticsearch platform ingests 30 petabytes of raw data per day and handles 30 billion queries per day on Elastic Cloud[13] - Elastic Cloud has over 2200 customers using AI[32] Customer Adoption and Expansion - Elastic has over 21550 total customers, with over 1550 customers spending more than $100K ACV[56] - 50% of Fortune 500 companies are paid customers of Elastic[56] - 90% of Elastic Cloud observability customers use log analytics, and 35% use beyond log analytics[38] - 95% of Elastic Cloud security customers use Elastic as a SIEM, and 20% use it beyond SIEM for use cases like XDR[45] Financial Performance and Targets - Elastic aims for a medium-term sales-led subscription revenue growth of 20%, comprising 15% base growth and 5% GenAI tailwinds[265, 267] - The company is targeting a non-GAAP operating margin of over 20% and an adjusted free cash flow margin of over 20% in the medium term[267] - Elastic's adjusted free cash flow reached $286 million in FY25, representing a 19% margin[271]

Financial Data and Key Metrics Changes - Total revenue in Q4 was $388 million, growing 16% year-over-year on an as-reported and constant currency basis [30] - Subscription revenue in Q4 totaled $362 million, also growing 16% as reported and 17% in constant currency [30] - Elastic Cloud revenue grew 23% on an as-reported and constant currency basis [30] - Non-GAAP operating margin for Q4 was 15%, with a gross margin of 77% [35][36] - Adjusted free cash flow margin improved by approximately 600 basis points to end the year at 19% [36] Business Line Data and Key Metrics Changes - The number of customers with over $1 million in annual contract value grew approximately 27%, adding about 45 net new customers [34] - Customers with over $100,000 in annual contract value grew approximately 14%, adding about 180 net new customers [34] - Subscription revenue excluding Monthly Cloud was $315 million, growing 19% in Q4 [32] Market Data and Key Metrics Changes - Strong growth was observed in the APJ region, followed by EMEA and The Americas, while some pressure was noted in the U.S. Public sector [34] - Over 2,000 Elastic Cloud customers are using Elastic for Gen AI use cases, with over 30% of these customers spending $100,000 or more annually [12] Company Strategy and Development Direction - The company is focusing on leveraging AI to automate business processes and drive innovation, positioning itself as a strategic partner for enterprises [11][18] - Elastic aims to strengthen its position as the preferred vector database, enhancing its offerings with new technologies like better binary quantization [13][19] - The company is committed to maintaining a balance between growth and profitability while continuing to innovate and expand its product offerings [40][43] Management's Comments on Operating Environment and Future Outlook - Management acknowledged potential uncertainty in the macro environment but expressed confidence in the healthy pipeline and demand signals [39] - The company expects continued growth and strong margins in FY 2026, projecting total revenue in the range of $1.655 billion to $1.670 billion [42] Other Important Information - Elastic Cloud now accounts for over 50% of subscription revenue, with strong growth in cloud adoption [18] - The company announced a strategic collaboration agreement with AWS to enhance solution integrations and accelerate AI innovation [25] Q&A Session Summary Question: Guidance and Metrics - Inquiry about the conservativeness of guidance and leading indicators of business performance [45] - Response highlighted the balance of positive demand signals with macro uncertainty, emphasizing the importance of CRPO and subscription revenue metrics [46][49] Question: Partnerships and Market Opportunities - Question regarding the impact of recent partnerships, particularly with AWS and NVIDIA, on market opportunities [53] - Management noted the growing acceptance of Elastic as a leading vector database and the importance of partnerships for driving cloud adoption [54] Question: Retrieval Augmented Generation (RAG) - Inquiry about the durability of RAG architectures and Elastic's positioning [59] - Management affirmed the critical role of retrieval in enterprise data management and the growing adoption of their vector database for RAG use cases [60][61] Question: Cloud Performance and Consumption Hesitation - Question about the sequential growth in cloud performance and the impact of the leap year [62] - Management clarified that the leap year and fewer days in Q4 affected consumption rates, but normalized growth rates remained strong [64][66] Question: Go-to-Market Strategy and Changes - Inquiry about the effectiveness of go-to-market changes made in the previous fiscal year [69] - Management confirmed that the changes have settled and are yielding positive results, with plans to continue hiring sales capacity [70][72] Question: AI Commitments and Emerging Use Cases - Question about the $1 million AI commitments and emerging use cases [93] - Management clarified that 25% of $1 million customers are using Elastic for AI workloads, with a variety of sophisticated use cases emerging across industries [94][96]