ESTC

• Revenue Acceleration: Q1 Total Revenue grew 15% to $478 million, and Sales-Led Subscription Revenue grew 18% to $399 million. Constant currency growth accelerated quarter-over-quarter, validating the plan to accelerate growth throughout fiscal 2027.
• Enterprise Momentum: The company added a record number of net new customers to the >$100K ACV cohort (80 net additions). This cohort now represents 90% of sales-led subscription revenue, up from 87% year-over-year.
• AI Penetration: Over 37% of the >$100K customer base is now using Elastic for AI use cases, up from 21% a year ago, representing more than 670 high-value customers. AI adoption is driving deeper platform usage and expansion.
• Product Innovations:
  • Observability: Relaunched metrics offering with 'Columnar Mode' in Elasticsearch 9.5, reducing storage costs to ~3 bytes per metric sample. Added native Prometheus ingestion with PromQL support.
  • AI/Vector Search: Released VectorDB Index Mode and Auto Calibration for out-of-the-box vector search. Extended Gina’s multimodal models to on-premises and air-gapped environments.
  • Security: Achieved 'Alert Zero' status for SOC teams via autonomous Attack Discovery. Named a leader in Gartner Magic Quadrant for Observability and IDC Marketscape for SIM.
• Strategic Acquisition: Acquired Deductive AI, a leader in AI-SRE, to enable automated investigation and remediation using reinforcement learning, integrating it into the observability platform.
• Cloud Flexibility: Maintained strong cloud performance with 27% annual cloud growth. Emphasized the competitive advantage of supporting diverse deployment models (cloud, self-managed, air-gapped) which aids in displacing incumbents.
• Public Sector Growth: Leveraged FedRAMP High authorization to win large U.S. government contracts, including a major migration from an incumbent SIEM provider completed in under one month.

• Q2 Fiscal 2027 Guidance Raised:
  • Total Revenue: $486–$487 million (midpoint ~15% constant currency growth).
  • Sales-Led Subscription Revenue: $407.5–$408.5 million (midpoint ~17.1% constant currency growth).
  • Non-GAAP Operating Margin: ~19%.
  • Non-GAAP Diluted EPS: $0.80–$0.82.
• Full Year Fiscal 2027 Guidance Raised:
  • Total Revenue: $1.998–$2.010 billion (midpoint ~15.3% constant currency growth).
  • Sales-Led Subscription Revenue: $1.682–$1.694 billion (midpoint ~17.5% constant currency growth).
  • Non-GAAP Operating Margin: ~19.4%.
  • Non-GAAP Diluted EPS: $3.29–$3.37.
  • Adjusted Free Cash Flow Margin: 21.5%.
• Key Drivers for Raise: Strong Q1 CRPO ($1.2B, +20% CC) and RPO ($1.9B, +27% CC), improved pipeline health, higher sales productivity, and robust consumption against prior commitments.

Elastic does not report financial results by distinct product segments (e.g., Security, Observability, Search) in its standard GAAP or non-GAAP reporting. Instead, the company reports consolidated Total Revenue and Sales-Led Subscription Revenue. While specific revenue contributions for individual segments are not disclosed as absolute figures or percentages of total revenue, management highlights that the cohort of customers with Annual Contract Value (ACV) over $100K now contributes 90% of sales-led subscription revenue. Additionally, it is noted that Security growth roughly matches AI/Search growth, with Observability being the third pillar.

• Macroeconomic & Budgetary Pressures: While not explicitly detailed as immediate failures, management notes the challenging landscape for CISOs and IT budgets due to rapid vulnerability discovery, necessitating faster, AI-driven responses.
• Execution Risk on New Metrics Strategy: The push into infrastructure monitoring/metrics is described as 'early' and an area where they historically lacked major presence. Success depends on convincing customers to adopt the new Columnar Mode and displace incumbent tools.
• Regulatory & Sovereignty Constraints: A significant portion of enterprise/government demand is driven by data sovereignty needs (air-gapped/on-prem deployments). Failure to meet these strict operational sovereignty requirements could limit penetration in regulated industries.
• Competition: Intense competition from pure-play vector databases, traditional SIEM vendors, and other platform players who may offer AI as add-ons rather than integrated solutions.
• Restructuring Charges: One-time charges related to organizational changes ($13M cash paid in Q1, with $2–$5M expected for the remainder of the year) highlight ongoing operational adjustments.

Q: Analyst asked why the record growth in the >$100K customer cohort is happening now and if it is sustainable, noting the surge in AI adoption within this group.

A: CEO Ash Kulkarni attributed the success to a matured go-to-market motion and segmentation changes made two years ago, which improved sales productivity. He emphasized sustainability through AI penetration; since 37% of this cohort uses AI features (up from 21%), these customers expand faster by adopting more platform solutions. The 100K cohort now drives 90% of sales-led subscription revenue, confirming the strategy's effectiveness.

Q: Analyst asked about the distribution of AI deployments across cloud, on-prem, and hybrid, specifically regarding data sovereignty and whether on-prem AI capabilities are gaining traction.

A: CEO stated that while cloud remains the primary entry point, regulated industries and international markets show strong demand for on-prem and air-gapped deployments due to operational sovereignty needs. Elastic launched commercial pricing for on-prem Gina models to address this. Management expects AI deployment choices to be driven by data sensitivity and geolocation, ensuring continued relevance in both cloud and self-managed environments.

Q: Analyst asked how Elastic differentiates itself in the context layer for agentic AI compared to competitors building proprietary harnesses, and how security spending trends.

A: CEO explained that Elastic’s core strength lies in handling unstructured/messy data efficiently, which is critical for accurate context retrieval for LLMs. Unlike competitors focused on structured data, Elastic provides flexibility in model choice (proprietary vs. open) and transparent, customizable agent harnesses. Regarding security, CFO Navam Welihinda confirmed it is a high-growth vector, though specific revenue % was not disclosed; CEO noted security growth roughly matches AI/Search, with Observability as the third pillar.

Q: Analyst questioned the confidence behind raising full-year guidance so early in the fiscal year, given conservative software industry norms.

A: CFO cited three internal drivers: strong pipeline builds for Q2 and full year, robust consumption against committed CRPO/RPO numbers, and realized productivity gains from recent hiring. The sustained 20% constant currency CRPO growth for two quarters provided validation. Management maintains a prudent philosophy but felt the Q1 data points allowed for an upward revision without compromising risk-adjusted views.

Q: Analyst asked about the impact of AI on cloud consumption, specifically regarding the speed of migrating legacy SIEM data to Elastic and resulting consumption benefits.

A: CEO clarified that consumption strength was broad-based, not tied to a single migration event. However, he highlighted that automated migration tooling allows complex migrations (e.g., a large agency moving massive data estates) to be completed in under a month. This speed reduces friction and builds customer confidence, facilitating faster displacement of incumbents who are innovating slower in the face of AI-driven threat landscapes.