Elastic N.V. (ESTC) Earnings

Management highlights

- Overall Business Performance: Elastic delivered its seventh consecutive quarter of disciplined field execution, beating guidance across all key metrics for FY26. Q4 FY26 total revenue grew 16% YoY (14% constant currency) to $451 million; full-year FY26 total revenue grew 17% YoY. Q4 CRPO grew 20% YoY (accelerated 500 bps from Q3) to $1.2 billion, while total RPO grew 28% YoY (27.4% constant currency), the highest RPO growth in four years. Non-current RPO (commitments beyond 12 months) grew 43% YoY, reflecting growing customer adoption of multi-year contracts. Full-year FY26 non-GAAP operating margin reached 16.4%, an expansion of 120 bps YoY, with adjusted free cash flow margin of 20% putting Elastic at 37% on the Rule of 40 metric. As of Q4 end, 68% of the authorized $500 million share repurchase program had been completed, ahead of schedule. - Customer Growth Traction: Elastic ended FY26 with over 1,720 customers spending >$100k ACV. The >$1 million ACV customer cohort grew 14% YoY, adding 30 net new customers in FY26 to reach a total of over 240; the >$5 million ACV cohort grew 30% YoY. There are now over 600 of Elastic's $100k+ ACV customers using AI capabilities, with penetration exceeding one-third of this customer cohort. AI-using customers grow approximately 5% faster than non-AI customer cohorts. - AI Product Innovation: Elastic is positioned to capitalize on AI market evolution via four core strengths: (1) Data gravity: Elasticsearch is a highly efficient store for all unstructured/vector data, with new cross-project search for serverless that eliminates costly data centralization for distributed enterprise data. (2) AI context: Elastic offers hybrid search, the GINA V5 Omni multimodal embedding model family, and generally available Agent Builder, reducing token usage by 70% vs naive RAG while improving answer accuracy. Third-party data connectors enable zero-friction real-time context retrieval across enterprise systems. (3) Specialized AI agents: Elastic embedded AI automation across the full detection-to-remediation lifecycle for observability (agentic SRE) and security (agentic SOC), with embeddable agents compatible with all major third-party LLMs and new MCP apps for domain-specific workflows embedded in common developer tools. (4) Platform consolidation: Elastic now offers native Prometheus-compatible metrics storage that delivers up to 30x faster query speeds and better storage efficiency than open-source Prometheus, enabling enterprises to consolidate security and observability workloads onto a single data tier at lower total cost. - Organizational Changes: Elastic is adopting internal AI automation to reduce operational complexity and improve productivity. The company expects net headcount growth in FY27, with continued net hiring for sales capacity to drive growth, while other back-office and support functions will scale more efficiently via automation, enabling expanded operating margins.

Guidance

- Q1 FY27: Total revenue is guided to $469 million to $470 million, representing 13.1% YoY growth at the midpoint (12.8% constant currency). Sales-led subscription revenue is guided to $392 million to $393 million, representing 15.9% YoY growth at the midpoint (15.6% constant currency). Non-GAAP operating margin is expected to be ~14%, with non-GAAP diluted EPS of $0.57 to $0.59. - Full-year FY27: Total revenue is guided to $1.985 billion to $2 billion, representing 14.6% YoY growth at the midpoint (14.5% constant currency). Sales-led subscription revenue is guided to $1.673 billion to $1.688 billion, representing 16.9% YoY growth at the midpoint (16.8% constant currency). Non-GAAP operating margin is expected to be ~19%, an expansion of 260 bps from FY26, with non-GAAP diluted EPS of $3.21 to $3.29. Adjusted free cash flow margin is expected to increase to 21.5% (excluding acquisitions and one-time charges). Revenue growth is projected to accelerate progressively through the year, with Q1 posting the lowest growth rate and Q4 posting the highest. - Mid-term guidance update: Management raised the FY29 non-GAAP operating margin target from >20% to ~25%, and reaffirmed the existing target of 20%+ sales-led subscription revenue growth for FY29. Elastic remains on track to exceed the Rule of 40 by FY29. - No major changes to the existing successful go-to-market model are planned for FY27; the company will only add incremental sales capacity.

Segment performance

Elastic operates three core product segments: Search & AI, Security, and Observability. No explicit absolute financial results are broken out per segment, but management noted growth across all three segments in Q4 FY26. Search & AI was a strong grower, driven by demand for Elastic as an efficient AI data store and context platform, with penetration across more than one-third of Elastic's $100k+ ACV customer cohort. Security saw outstanding Q4 growth, led by strong adoption of the CISA SIM as a Service offering in the U.S. public sector and large enterprise displacement deals for unified AI-powered SIEM platforms. Observability grew across the board, with the newly relaunched native Prometheus-compatible metrics offering positioned to drive future expansion in the large infrastructure monitoring market. In terms of revenue contribution mix: sales-led subscription revenue (covering all three segments) represented 83.15% of total Q4 FY26 revenue ($375 million out of $451 million total revenue). Annual cloud revenue (all segments combined) grew 26% YoY, while monthly self-serve SMB cloud revenue grew 3% YoY, remaining flattish as expected.

Risks & headwinds

No material new risks or ongoing operational failures were explicitly discussed on the call. Management noted that forward-looking statements are subject to general market and macroeconomic risks that could cause actual results to differ materially from projections, including variability in cloud vs self-managed commitment mix that impacts in-quarter revenue recognition, uncertainty around customer consumption trends, and timing of large deal closures. Pricing adjustments may have unforeseen impacts on customer consumption that do not align with projected revenue growth.

Analyst Q&A

• Q: What is driving the recent acceleration in CRPO and RPO growth, and can the CISA SIM as a Service success in U.S. public sector be replicated in commercial markets? /

  A: The acceleration comes from three key product-driven AI tailwinds: growing adoption of Elastic as an efficient data store for new AI applications, strong demand for Elastic's context layer capabilities for grounded AI, and increasing adoption of Elastic's specialized AI agents for security and observability. These strengths enable larger, longer-term customer commitments and deeper entrenchment in enterprise AI infrastructure. The CISA SIM as a Service offering is already exceeding its original $26 million 12-month commitment, with growing adoption across civilian agencies all on Elastic Cloud. The same displacement momentum is already visible in commercial markets, such as the recent eight-figure win with a Fortune 50 global bank that consolidated its SOC onto Elastic's AI-powered platform, proving the model translates beyond the public sector.

• Q: Given accelerating 20% CRPO growth, why is FY27 sales-led subscription growth guidance slightly lower than FY26's 18% constant currency growth, and when will growth reach the 20% mid-term target? Are there any planned go-to-market changes for FY27? /

  A: The full-year FY27 guidance reflects an accelerating quarterly growth trajectory, with Q1 posting the lowest growth rate and growth stepping up sequentially through the year to a higher exit rate in Q4, driven by the backlog of existing CRPO commitments and a larger base of ramped sales capacity entering FY27. Management remains confident that the accelerating commitment trend will keep Elastic on track to hit the 20%+ sales-led growth target by FY29. There are no planned structural changes to the go-to-market model, which has delivered strong consistent execution for the past eight quarters; the company will only add incremental net sales capacity in FY27 to drive further growth.

• Q: What is the opportunity for Elastic's new revamped metrics offering, and is its contribution included in the FY27 guidance? /

  A: Elastic's new native Prometheus-compatible metrics platform outperforms competing offerings on efficiency, ingest performance, and query speed. The primary initial go-to-market motion will be expansion into existing Elastic log analytics customers, which is a fast route to market. Over time, Elastic expects to lead with metrics for net new deals, opening up a large new portion of the observability market that Elastic has not previously meaningfully participated in. The FY27 guidance only includes organic growth from existing products, and does not assume material contribution from the new metrics offering or any acquisitions, leaving this as potential upside for the year.

• Q: How large is the Splunk displacement opportunity, and could it drive upside to FY27 guidance? /

  A: There is large, growing displacement opportunity across incumbent security and observability vendors including Splunk, driven by enterprise demand for modern AI-powered platforms that can store and analyze large security datasets at lower cost than legacy offerings. Elastic is already seeing significant success displacing incumbents, which is reflected in the strong Q4 CRPO growth. Management expects these displacement wins to drive revenue acceleration over the next 12 months and beyond, as incumbents still hold substantial market share that is up for grabs in the current market environment.